office lease

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Lease Negotiation Tactics

A GuideFOR SMALL BUSINESS TENANTS

By: XAVIER. J. FERNANDEZ, ESQ.

Copyright © 1991- 2008 by Xavier J. Fernandez, Esq. A Xarelex book published in 1991 by Unimedia, Indian Rocks Beach, Florida.

All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without prior permission of the publisher. Notwithstanding the foregoing, purchasers of this book from established retail businesses may reproduce any clause recommended in this book without charge for the limited purpose of use in their business.

This book is designed to provide accurate and authoritative information with respect to the subject matter covered. It is sold with- the understanding that the publisher is not engaged in rendering legal or other professional services. If legal advice or other expert assistance is required, the services of an attorney in your state should be sought. While every attempt is made to provide accurate information, the author or publisher cannot be held accountable for errors or omissions.

© DrFernandez.com 2008

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ABOUT THE AUTHOR

Xavier J. Fernandez received his B.S. degree, cum laude, in Economics from Siena College, an M.S. in Business Management from the State University of New York at Albany, and his Juris Doctorate from Stetson University College of Law.

He was Director of Business Affairs with the State University of New York during years in which the university experienced rapid expansion of its facilities and enrollment, and Chief of Legal Affairs of a State Attorney's office during a period when its staff and offices grew over five times its original size, and established numerous new offices. He then turned to the general practice of law and management consulting.

His law practice is devoted to trial litigation and to providing medical professionals with structures to protect assets from creditors. He is a Florida Supreme Court Certified Mediator who, either privately or by court appointment, resolves disputes as an alternative to litigation, specializing in mediation of disputes between medical professionals.

He has lectured on the college and seminar level on personnel management, labor relations, lease and leasehold improvement contracts, financial planning, insurance, overhead control, and asset protection. He is also the author of The Buildout Book – A Step-by-Step Guide to Remodeling and Interior Construction Contracting for Small Business.


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TABLE OF CONTENTS

FOREWORD

1. PRE- NEGOTIATION CONSIDERATIONS 1.1 WHAT IS A LEASE? 1.2 POSTURING FOR NEGOTIATIONS 1.3 GET IT IN WRITING 1.4 OFFERING AMENDMENTS TO THE LEASE 1.5 THERE’S NO HARM IN ASKING 1.6 INTENT TO LEASE AGREEMENTS 1.7 CONDITIONED ON FINANCING 1.8 THE FOUR MAJOR FINANCIAL HURDLES 1.9 YOUR LANDLORD AS A SOURCE OF FINANCING 1.10 WHO IS THE LESSER AND LESSEE?

2. THE PREMISES 2.1 AREA 2.2 TYPES OF PROPERTY 2.3 USABLE SPACE VERSUS RENTABLE SPACE 2.4 SIZE OF THE SPACE 2.5 RIGHTS AND RESTRICTIONS 2.6 PARKING

3. TERM OF THE LEASE 3.1 GENERAL 3.2 HOW LONG SHOULD IT BE? 3.3 COMMENCEMENT DATE 3.4 OPTION TO RENEW 3.5 TERMINATION 3.6 YOUR RIGHTS IF YOU SUBLEASE 3.7 HOLDOVER TENANCIES

4. RENT 4.1 DEFINITIONS AND TYPES OF LEASE AGREEMENTS 4.2 ESCALATOR CLAUSES 4.3 DEFERRED RENT 4.4 OTHER RENT DEDUCTIONS 4.5 PREPAID RENT 4.6 SECURITY DEPOSITS 4.8 REAL ESTATE TAXES

5. OBLIGATIONS OF THE LANDLORD 5.1 CONDITION OF PREMISES AND REPAIRS 5.2 OPERATING AND MAINTENANCE OF BUILDING EXPENSE 5.3 COMMON AREA CHARGES 5.4 CLEANING SERVICES 5.5 LANDLORD’S SERVICES 5.6 LANDLORD’S DEFAULT 5.7 NON- COMPETITION CLAUSES

6. OBLIGATIONS OF TENANT 6.1 HOLD HARMLESS CLAUSES 6.2 RESTORATION CLAUSES 6.3 IMPROVEMENTS, BUILDOUTS AND RENOVATIONS 6.4 SIGNS


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6.5 COMPLIANCE WITH LAWS 6.6 RIGHT TO TERMINATE 6.7 USE CLAUSE 6.8 LEGALITY OF USE

7. ESCAPES AND CUSHIONS 7.1 SUBLETTING AND ASSIGNMENTS 7.2 SUBSTITUTION OF FORM OF BUSINESS 7.3 DISABILITY CLAUSES 7.4 SALE CLAUSES 7.5 THE CORPORATE TENANT 7.6 CONDEMNATION

8. INSURANCE 8.1 INSURANCE – OVERVIEW 8.2 BASIC COVERAGE – LANDLORD’S OBLIGATIONS 8.3 BASIC COVERAGE – TENANT’S PROTECTION 8.4 SCOPE OF INSURANCE COVERAGE 8.5 USE OF PROCEEDS

9. DEFAULT PROVISIONS 9.1 PAYMENT, NOTICE AND TIME TO CURE 9.2 RE-ENTRY TO TAKE PROPERTY 9.3 ACCELERATION CLAUSES 9.4 FAILURE TO RENEW

10. ARBITRATION 11. OPTIONS 11.1 OPTION TO PURCHASE 11.2 RIGHT OF FIRST REFUSAL TO PURCHASE 11.3 RIGHT OF FIRST REFUSAL ON ADJOINING SPACE

CONCLUSION

EXHIBITS (Located at the end of this book.)

A. SAMPLE LEASE – LONG FORM WITHOUT AMENDMENTS

B. SAMPLE AMENDMENT FORMAT

C. SAMPLE AMENDMENT

D. SAMPLE SCHEDULE OF SERVICES AND FEES


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FOREWORD

Most business enterprises occupy their premises with some type of commercial lease. According to a recent Medical Economics survey, two out of every three physicians in office-based private practice rent rather than own their quarters. This book considers the more significant provisions of a commercial lease exclusively from the viewpoint of the tenant and is written to provide an elementary understanding of lease provisions to assist a prospective tenant in reviewing and negotiating a lease.

While many leases are long detailed documents, the scope of this book will focus its comments and suggestions on those provisions of areas most likely to affect, or be negotiable by the tenant. Other provisions, which are customarily included in leases, are discussed and may not require negotiation.

The landlord’s bank may require numerous clauses to be in leases for offices in large buildings. They are required to be in the lease document as protection for their mortgage. Generally, the tenant may ignore these, as the landlord is unable to negotiate or modify them, and usually they only indirectly affect the tenant. Likewise, some provisions have originally been included by an attorney who has tried to anticipate the most remote of circumstances. In these areas the tenant might consider spending his negotiating “chips” on more significant provisions.

There is usually a limit on how many items, if any, a landlord will agree to bargain over. You, after reading this text, should identify those provisions most important to you and press for those provisions.

While this text is not intended as a substitute for using an attorney, it hopefully will provide you with the knowledge to do most of the negotiations and will thereby substantially limit the attorney’s fees. An attorney should always review your lease before signing.

This text includes numerous references to doctors’ offices and their needs. This is intended, but no way qualifies or changes the principles or suggestions for those who are in other forms of business.

Also interwoven throughout the book are sample lease provisions. They are simply written to appear less threatening to the landlord. As a tenant, if you feel that they should be reinforced, you can and should modify them to suit your circumstances. You can then have your attorney review your additional provisions.

A new business owner has numerous duties requiring his attention during the few months prior to opening. One duty, which might be delegated to a cooperative spouse, may be the negotiation of the office lease, particularly where the spouse is more aggressive or business oriented.

The following seven-step procedure is recommended:© DrFernandez.com 2008

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1. Read this book to identify issues and questions.2. Review the lease.3. Review the book and check the unanswered questions.4. Ask for, and negotiate the important or relevant items.5. Document tentative agreements by preparing your amendment provisions. You

may wish to use some of the provisions suggested in this book.6. Have an attorney review the lease.7. Present the lease to the landlord.


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1. PRE- NEGOTIATION CONSIDERATIONS

1.1 WHAT IS A LEASE?

A lease is an agreement between landlord and tenant with regard to the rights and responsibilities of both. It is a contract transferring control and possession of real property from the landlord to the tenant for a specific period of time in exchange for rent.

1.2 POSTURING FOR NEGOTIATIONS

If this is your first attempt at lease negotiations you may feel uncertain about your ability to negotiate. Landlords have considerably more experience in negotiating with tenants than a tenant has in dealing with landlords. Your ultimate success in getting what you want will be determined by the strength of your bargaining position, your skills as a horse trader, and the increased knowledge and confidence gained by reading this book.

You will be in a better position to deal with the landlord or his agent if you first talk to other tenants in the building. What they say might even change your mind about renting there. Ask about their experiences with the landlord:

Is he a reasonable person to deal with? Does he fulfill his commitments? Does the building maintenance staff keep it in good repair? Do the heating, air-conditioning and plumbing systems work well? Did tenants have any problems in obtaining the necessary electric and plumbing

connections when they moved in? Are the halls, elevators, windows, and washrooms kept clean? Do the washrooms always have adequate soap and paper goods? Have there been any problems with burglars or other crime in the building? Would they have leased space there now, if they had to do it over again? Did the landlord do their interior construction or build-out? Any problems or

delays? Are there any tenants whose customers fill the parking area? During what days

or times? Did they have any problems with common area maintenance assessments?

When you meet with the landlord, his attitude will depend largely on the state of the office rental market at the time. If the building is almost full and there is little other rental space available in the area, you can expect him to give fewer concessions. But if his building has a substantial amount of unoccupied space, your bargaining position becomes much stronger. Before you negotiate with him, try to find out if there are many offices vacant and how long they have been empty.

The landlord may have hidden motives, which may influence the desire to have you as a tenant. Among them may be:


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He has a mortgage that must be paid. He wants to have his building look full. He wants to rent spaces in anticipation of a future sale. He may be tired of showing the property. He may prefer your business or profession as a tenant.

Aside from your lease payment, there are many reasons the landlord may see you as a desirable tenant, for example:

Your ability to make money, and your ability to pay the rent. You are someone to whom a credit rating is important so you will pay the rent

when due. You have a clientele that does not have objectionable characteristics. Your clientele is likely to patronize the other tenants.

For these reasons you must realize that you are entering this process with bargaining power. The landlord needs you!

1.3 GET IT IN WRITING

While you may very often hear that oral agreements are enforceable, you should also be aware that it is substantially more difficult to prove these oral agreements, should you be called upon to do so in court. Without facts showing in a course of conduct, for example, you are placing the ultimate decision-maker, the judge, in the position of deciding whom to believe. This may lead to a compromise verdict where the judge, not knowing whom to believe, “splits the difference” so that each side wins something, or he can decide in favor of the person who can least afford the loss. The judge has little data upon which he can make a decision. This difficult position can best be avoided by putting every agreement or representation in writing.

While a lease could conceivably be written on a cocktail napkin, most are standard and sold by stationers or local landlords’ associations, or written by the landlord’s attorney. As a result, they probably favor the landlord. An example of a standard lease is found in exhibit A. In the next section you will see how you can add amendment provisions, such as those suggested throughout this book that apply to your situation.

Laws in many states provide that certain contracts are invalid and unenforceable unless they are in writing and signed. This requirement is found in a doctrine called the statute of frauds. An agreement for the leasing of real estate for a period longer than one year normally is required to be in writing to be enforceable.

You should also make sure that the following dates are clearly specified:

The beginning or commencement date of the lease. The ending date. The date you as tenant will be given possession. The date the first payment is due.


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The dates may be expressed as a specific calendar date, or as a time following a specific calendar date. These may all be the same or different dates, but each must be clearly specified to avoid problems.

1.4 OFFERING AMENDMENTS TO THE LEASE

In almost every case, the landlord will supply a document called the lease. Many clients incorrectly believe, because the office lease is in writing, that none of its terms can be altered, modified or amended. Any agreement can be negotiated. The prospective tenant should consider the lease submitted to him simply as the landlord’s first offer. The terms can and should be reviewed and negotiated to achieve the tenant’s desired goals.

This is done by an amendment to the lease. The amendment is nothing more than a separate document that you will prepare, which is attached to and will become a part of the landlord’s lease.

There should be an opening paragraph that ties the two documents together. It may state following:

AMENDMENTThis is an amendment to a lease between _________________________, landlord, and _________________________, tenant dated ___________, 20_____.

An example showing the format of an amendment is found in exhibit D.

Having tied the lease and the amendments together, you will next want to deal with the provisions which you are adding on, or on which you disagree. This can be done by striking out the provisions or by drawing lines through them and initialing the lines. A better, cleaner and more legible way is to state in plain English that you want to have the following provision among your amendments:

CONFLICT OF PROVISIONSLandlord and tenant agree that should any provision in this amendment disagree or conflict with any provision in the attached lease, the provision in this amendment will control.

In writing a provision, you need not to think that you have to sound like a lawyer. Many modern judges are urging lawyers to stop “writing like lawyers.” It has been suggested that lawyers spend three years learning how to say in three words what lay people say in one word. You should be able to simply state, “Landlord and tenant agree that ….,” and then use your own words or any of the suggestions in this book.

Where the size and location of an object is important to you, and it is difficult to describe your agreement in a narrative form, i.e., the location and size of a sign, you may add a page to your amendment or refer to it as an exhibit.

You see in exhibit C that the location and dimensions of the area are shown. What is


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important in this type of illustration is to show the distance between the object which you are locating, i.e. the sign, and other identifiable objects, i.e. the street, the sidewalk, trees, the corner of the building, etc.

1.5 THERE’S NO HARM IN ASKING

A Florida psychologist who rents a unit in a very popular building said, “The rental agent told me the term of the lease, and I said, ‘Any negotiation on that?’, and she said, ‘None.’ Then I said, ‘What’s the rent?’, and she told me, and I said, ‘Any negotiation on that?’, and she said, ‘No.’”

“All I got to put in the lease,” he laughs, “was my signature. The building is full, like everything else around here; they can say this is it, take it or leave it.”

Many people readily sign leases that they suspect protect only the landlord. Some do not even read them. “The problem is in finding the right place,” says an Atlanta doctor. “Once you’ve made that decision, the lease is incidental.”

While attitudes such as these exist, the majority of people who have been taught to understand the issues in their leases and have asked for concessions would state in a chorus, “THERE’S NO HARM IN ASKING.”

A Los Angeles area doctor, short on funds and without a co-signer, relates the story of how he had negotiated numerous provisions we discuss in this book, and began to get confident as he got to the critical issue of money. He asked for six months free rent. To the doctor’s surprise, the landlord agreed. He remembered advice given to him to keep asking, so he asked the landlord to finance the interior construction or buildout. The landlord did! Again he moved ahead asking for more. He asked the landlord to loan him $40,000 for a working capital loan. The landlord chuckled and said he couldn’t do that, but gave the doctor the name of a banker who had approved the mortgage loan on the building and referred the doctor to the banker. The doctor was approved for the working capital loan.

A survey of hundreds of prospective tenants who were assertive in their lease negotiations and asked for the concessions they wanted, revealed that none suffered any injury worse than a landlord’s snicker.

STATISTICAL SUMMARY:LOST LIVES: 0INJURIES: 0SNICKERS: 3

Landlords are rarely going to make a concession unless it is requested, nor can they read your mind to know what you wanted but were afraid to ask. You must ask, ask, ask…and you’ll very often get what you ask for. THERE’S NO HARM IN ASKING!


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1.6 INTENT TO LEASE AGREEMENTS

Often a salesperson will prepare a short document, which expresses the tenant’s intent to enter a longer, more detailed lease at a later time. This short form agreement often includes a few agreed-upon provisions. Most often, this document is the salesperson’s contract to entitle him to his commission from the landlord.

There may be problems with your signing such as an agreement. Signing may be enough to establish a legally binding relationship. Even though both parties anticipate that a formal lease will be signed at a later time you may be bound to the terms of the landlord’s lease. Your argument that the short form was merely a preliminary, non-binding agreement to enter a future lease may be to no avail. You will be better off if you delay signing anything until a formal lease is signed.

Beware of the following factors, which may turn a preliminary agreement to lease into a legally binding lease:

Your conduct. Your actions may indicate you have already entered a lease. You may have confirmed the essential terms of the lease in a letter, or paid advance rent or a security deposit.

The wording of the letters. The letters may contain everyday words and phrases that indicate they form the basis of the lease. For example, you “agree to rent” space from landlord. The letters may not say that the agreement is merely an agreement to execute a future lease, but connects you to signing a document before seeing it.

If you don’t want to be bound until a formal lease is executed by the parties, include the following in bold or underlined type at the top of any document that states some of the agreed-upon terms of a future lease: “For Preliminary Negotiation Purposes Only” or “Final Agreement Subject to Execution of a Formal Lease.” You may also write your own amendment including as many provisions found in this book which apply.

Any signed agreement to lease, letter, or memorandum should also include a clause similar to the following:

This agreement represents some of our understandings about a possible future lease and is not intended to create a legally binding obligation on either party. Such an obligation will be created only when both parties execute a formal lease, covering all of the rights and obligations of the parties. If a formal lease is not signed, neither party will be liable to the other under this document, or as a result of any preliminary negotiation.

To further protect yourself, if you are aware of numerous lease provisions you will want to request, prepare your amendments and attach them to the “Intent to Lease” agreement.

1.7 CONDITIONED ON FINANCING


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Often, at the time the lease is being negotiated the tenant may not have obtained a start-up loan commitment from a bank. In other cases, a person already in business who is contemplating a move, may not have the money saved and must get a loan to finance the build-out of a new facility. In either case, it would be foolish to enter into a lease requiring lease payments to begin without having a commitment from a lender assuring the tenant he would have the money to make the lease payments. You may want to consider using the following paragraph to deal with this situation:

CONDITIONLandlord and Tenant agree that: this lease is not effective until, and is conditioned upon tenant first obtaining a loan in the amount of $(amount) from (lender) on terms acceptable to tenant.

A clause which obligates you under the lease but would excuse payment until you get financing would be: CONDITIONLandlord and Tenant agree that: the payments on this lease will not begin until tenant first obtains a loan in the amount of $(amount) from (lender) on terms acceptable to tenant.

In any event, you will want your deposit money back if you are not successful in getting the loan:

REFUND OF DEPOSIT In the event tenant is not successful in obtaining the specified bank financing, any deposits or lease payments paid prior to obtaining financing will be promptly refunded to tenant.

In the former case, the lease does not go into effect unless you get the loan. In the latter case, the lease is in effect but you are not obligated to pay rent until you have the money

Landlords have reason to balk at this provision since it would take the rental facility off the market while you are awaiting a commitment on your bank loan. For this reason you will have to negotiate an amount of time during which you will get the loan. If you are unable to get financing, make sure you state that your obligations under the lease expire, you may provide:

EFFECT OF CONDITIONShould tenant be unable to obtain financing in ____ days from the date of this agreement, tenant’s obligations under this lease are terminated.

1.8 THE FOUR MAJOR FINANCIAL HURDLES


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It is important to perceive the negotiation of lease terms as a critical and interrelated part of the four financial hurdles a new business faces.

Just as it is wise for any investor to diversify his investments to avoid losing all his money should one investment go bad, a bank may have a limit on how much they will lend you, particularly if you do not have collateral to provide the bank with additional security. For this reason you will want to spread the risk among the individuals you approach to borrow money.

In opening a business, you could contract for four major financial commitments. They are, in order of difficulty:

(1) The lease of office space.(2) The lease or purchase of equipment (3) The construction costs associated with building out or remodeling the office space.(4) The working capital loan - your most difficult hurdle.

The manner in which the first three are negotiated may have a substantial effect on the success of the last – getting the working capital loan.

Your office lease is usually the easiest to obtain. A landlord accepts your promise to make a string of payments, often totaling thousands of dollars. He always has the security of knowing that he owns the property which he can repossess should you not pay the rent as agreed.

The equipment you will need can be leased or purchased. The economics of the two alternatives should be considered. The practical reality for a new business suggests that leasing would be preferred, since another person, the leasing company, shares part of the risk in your success by extending you credit. Without the leasing company, you would possibly be requesting an additional amount from the bank you are looking to for working capital. This additional request could increase your loan request above the amount a bank is willing to loan a young aspiring businessperson.

The build-out, or leasehold improvements as they are often called, or renovation costs, range between a few hundred dollars to repaint a previously used office to $30,000 for building out a 2,000 square foot shell in a new building. We will discuss in the next section how the landlord can often use his credit to finance the construction in space and relieve you of again looking to the bank or your working capital lender for additional funds.

As you can see, if you have been successful in getting your landlord and a leasing company to extend you credit or concessions, you have helped yourself with the most difficult hurdle to opening or moving an office – getting the working capital loan.

1.9 YOUR LANDLORD AS A SOURCE OF FINANCING


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There is no question that the most difficult time you’ll experience in setting up your business is survival during the critical first few months, when your income is low and receivables have not yet been converted into cash. In ordinary business terms, this is known as a “negative cash flow.” All businesspersons understand this and have probably experienced it. Landlords also understand this problem. For this reason, you should not fear disclosing this to him, you should also make an appeal to him to work with you during these critical few months. Ask him to give you concessions such as: no rental payments for a period of time, a reduced rental payment, not requiring or deferring the security deposit, or a waived security deposit.

When asking for concessions, one must be reasonable. In this regard, when asking for relief from the negative cash flow during the first few months, you may follow the request by offering to pay him the forgiven rent during the remaining term of the lease. For example, if he allows you not to pay $1,000 a month during the first six months of your business, you might offer to the pay $6,000 plus interest spread over the 13 th through 24th months of the lease term.

Another way your landlord can help you solve the “negative cash flow” problem, as well as minimize the amount needed in a working capital loan, is in the area of financing the build-out or construction of improvements within the leased premises.

An effort should be made to approach the landlord and ask him to obtain the loan for the build-out in his name, and you will repay him by making the payments with a premium or profit to him during the course of the loan repayment period. By doing this, you have reduced your cash needs at the beginning of the lease and not used up your “credit” with the bank by reducing the amount you will be requesting for working capital.

In almost every case, the landlord will be an established businessman who has long established credit with financial institutions. For him to obtain a loan may often be a simple matter of a telephone call to his bank and signing some papers. This is in contrast to the difficulty a new businessman experiences in borrowing money.

You might point out to the landlord that it is to his benefit to assist you in this manner, primarily because the proceeds of the build-out loan will be used to improve his building. All in all, he not only has his building improved, but also gets bonus interest earnings and possibly additional tax benefits.

While it might appear to your advantage to have the landlord finance or pay for necessary construction, you should consider this potential problem. Increases during the term of the lease will be calculated as a percentage of the base rent. If the landlord includes the repayment of the cost of the build-out or improvements to the base rent, it creates a higher base rent, to which most “escalator” clauses are tied. (see section 4.2 for a discussion of the escalator clause.) Thus, it may be better for you to try to separate the original lease figure from the figure which includes the repayment for the build-outs, and pay the escalation percentage on the original lease figure only. A clause to accomplish this might be:

ESCALATION CLAUSE LIMITATION


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The escalation clause on this lease will be calculated on the original base of $________ per year, and will not increase the minimum based on the supplemental amount to repay landlord for improvement or build-out.

1.10 WHO IS THE LESSOR AND LESSEE?

The lessor of a property is the landlord and the lessee is the tenant. It is certainly simpler and more understandable to call the parties landlord and tenant. This book will use this format, and in writing any lease provision you can feel free to do so.

2. THE PREMISES

2.1 AREA

In this book, when the premises are mentioned, it refers to the area being leased and any other facilities or space being provided by the landlord. At the outset, the parties should have a clear understanding of the description of the premises and common areas, if any. These areas must be clearly and precisely described in the lease document.

Where the premises are the entire building, you should require that a full legal description of the property be included in the lease. If the premises are only a part of the building, you should attach to the lease, as an exhibit, a plan of the entire building with the premises identified on the exhibit.

It is also advisable to have in the lease a precise description of what is included in the “premises” you rent.

One Ohio doctor was shown an office by a rental agent, who then took him on a tour of the building. “Plenty of space for storage here,” said the agent, opening the door of a large storeroom. “And there are garage facilities right out back.” The doctor later discovered that he had to pay extra for storage and garage space, since the lease did not specify this as a part of the premises.

The doctor mistakenly took for granted that he was to get storage and garage rights. That was a big mistake. NEVER TAKE ANYTHING FOR GRANTED WHEN NEGOTIATING A LEASE. If the doctor had questioned the agent about the storage and garage facilities, he could have had them included in the lease, as he later learned the other tenants had done.

There are two basic modes of office rental, sometimes known as “finished” and “shell.” A shell is an office in which just the four outer walls of the suite plus air conditioning, elevators and basic utilities are provided. The tenant arranges and pays directly for all construction and decorating.


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In a finished office, the landlord takes responsibility for construction and decoration, based on plans provided by the tenant. The tenant pays for this through an increased annual rent per square foot.

In addition, the tenant should not be placed in a position of "inheriting" the landlord’s problems with the facility. The problems might be difficult to discover prior to occupancy. Adding the following provision to your lease amendment would give the tenant time to discover and report the defects:

CONDITIONS OF PREMISESTenant does not take responsibility for any pre-existing conditions at the time of occupancy, and will provide a list of any readily detectable defects to the landlord within 30 days after occupancy.

2.2 TYPES OF PROPERTY

Real property (or real estate) is the land and any structure on the land. Personal property is all property other than land that is normally movable. Fixtures are items of personal property which are attached to the real property.

The law presumes that anything that becomes a fixture or becomes an integral part of the building belongs to the landlord. This legal notion could have serious consequences in some offices. The following four tests will assist you in determining when personal property has been converted to a fixture:

(1) The Method of Attachment. If it is nailed, bolted, glued, built in or cemented, then it is a fixture that has become a part of the real property. But if the item is easily removable without damaging the building, then it is personal property. Another example is floor coverings. Obviously, linoleum tile is glued to the floor and is permanently attached. Similarly, wall-to-wall carpet is nailed or glued to the floor becoming a fixture. But a rug lying on the floor is not a fixture since it is not permanently affixed to the floor.

(2) Adaptability for Use with the Property. If the item is specially adapted to the structure and is permanently attached, then it is usually a fixture. (3) Intention or Agreement of the Parties. Conduct of the landlord and tenant often helps determine the intent. For example, a landlord gives a tenant permission to install wall-to-wall carpet in a building on the condition the tenant leave the carpet when vacating.

(4) Relationship of the Parties. Finally, if the tests don't resolve the dispute, court litigation may result. In close cases, courts usually favor the tenant over the landlord.

The rules of fixture may have some exceptions, depending on the state in which you do business. One involves fixtures used in a business. If the item is used in its owner's business, it is called a "trade fixture." Even when such items are permanently attached to the building, they remain the personal property of the business owner and can be


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removed if the premises are restored to the original condition. For instance, an example of a trade fixture is a business sign.

A doctor in Florida installed central air conditioning in his offices. A year later, preparing to leave, he learned from his lawyer that the air-conditioning system now belonged to the landlord.

In a Texas case, a chiropractor thought his adjusting tables must remain with his landlord, since the tables were bolted into concrete. He was wrong. Bolted or not, adjusting tables are not considered integral parts of a general office and would fall under the trade fixture exception.

These cases underscore the importance of thinking twice before putting valuable improvements on the property you lease. In order to avoid any problems, however, it is simpler to anticipate most situations and include your understanding in your amendments. If the lease also covers personal property that is situated on, attached to, or used in connection with the leased space, a detailed description of the personal property should be attached to the lease and a provision added to the lease showing an agreement between the landlord and tenant that the personal property or fixture remains the property of the tenant. Some suggested provisions are:

NEGATE LANDLORD'S LIEN ON PERSONAL PROPERTYLandlord hereby releases any lien or claim which he may have or acquire on personal property located on the premises.

FIXTURESTenant shall have the right at any time and from time to time during the term, and any extended term, at his sole cost and expense, to install equipment to, in, or on the leased premises he alone shall desire. Any such fixtures, equipment, and other property installed in or affixed to or on the leased premises shall remain the property of the tenant; and the landlord agrees that the tenant shall have the right at any time to remove any and all such fixtures, equipment and other property, including, without limitation, counters, shelving, showcases and X-ray equipment.

SPECIAL EOUIPMENTIt is the intention of the tenant to have a dark room and an X-ray room. With respect to these rooms, the parties understand that the X-ray equipment and photographic equipment that may become affixed to the walls of these rooms shall remain the personal property of the tenant and shall not become fixtures.

SPECIAL CONSTRUCTIONIt is further understood that certain walls will require leading for radiation protection of other occupants of the building and that a radiation physicist will be employed to make this determination. The leading applied to the walls will be in the form of sheet rock with lead bonded to it. These materials remain the personal property of the tenant and do not become fixtures.

Often the lease will include provisions requiring the tenant to surrender the premises on the termination of the lease "in the original condition, subject to reasonable wear and


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tear."

FIXTURES TO REMAINIt is further understood that the tenant will install certain fixtures (leaded walls leasehold improvements, carpeting, etc.) which may, at tenant's option, remain as part of the facility upon termination of the lease, and no assessment will be made against the security deposit for the removal of these leasehold improvements nor shall landlord require their removal.

REMOVAL OF X-RAY AT TERMINATIONIn the installation of the X-ray equipment, small bolt holes will be made in the wall of one of the rooms. Upon termination, the tenant shall (patch), (patch and paint), (patch and wallpaper), and upon doing so, no deduction will be made from any security deposits provided for in this lease.

2.3 USABLE SPACE VERSUS RENTABLE SPACE

You can get more for your dollar by giving careful consideration to such factors as how much growth space is being lost to hallways, elevator shafts, or similar areas. When seeking space, be particularly alert to the "lost factor" - the difference between the space offered in the lease and the amount you can actually use to operate your business. These measures are often called the difference between rentable space and usable space. Be sure that someone (if not yourself, your architect or engineer) measures the space before the lease is signed. Having determined the amount of usable space, you can then negotiate the rent. Though the landlord is unlikely to simply drop the rent in direct proportion to the amount of unusable space involved, there is usually the possibility of compromise.

Here's an example: A commercial office building floor has a total of 4,800 square feet. Washrooms, hallways, and utility closets occupy 800 square feet, leaving 4,000 square feet of usable space. The ratio of rentable to usable space on this floor will be 4,800 to 4,000, or a "load factor" of 1.2. Thus, you have to pay rent on 4,800 square feet, even though you use only 4,000 in your office. This practice may vary from one community to another and even from one building to another in the same city.

2.4 SIZE OF THE SPACE

Rent is often quoted on a square foot per year basis. For example, if you are quoted $12 per square foot, and you are renting a 1,200 square foot space, you would be paying $14,400 annually. To calculate your monthly rent, you would divide by twelve. Ask how the square footage is calculated. The square-foot total you should be asking for is the usable footage. The landlord may be thinking in terms of rentable footage, which, as we have seen, may be quite different.

Where the rent is calculated by multiplying the space by a dollar-per-square-foot amount, the different few inches can mean hundreds of dollars per year in rent. In this area, you literally must take a measuring tape to the facility. . . measuring to the inch!


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Do not rely on the landlord's measurements or calculations.

There are three measuring techniques which can be used to determine the amount of space, each using a different point of reference. The space may be calculated as that space measured from 1) the interior surface of the perimeter wall, 2) the window surface (about the same as the center of the wall), and 3) the exterior surface of the wall.

Exhibit B illustrates these measuring points and shows that you can save $402 per year just by not having to include the four inches between the inside surface and the center of the wall, assuming an 80 by 20 space at $6 per square foot.

To provide assurance that you are renting only "usable” space, from the interior surface of the perimeter wall, you may want to include this provision:

SPACE MEASURING TECHNIQUE.To the extent that the rental payment is predicated on a square footage basis, landlord and tenant agree to use the "usable area" method of measurement in which actual field measurement will be made of the square footage within the interior surface of the perimeter walls.

Before using this provision, do the measurement to make sure it is to your benefit. On occasion, the Iandlord’s square footage measurements are erroneous, to your advantage.

Where the building is under construction at the time of signing the lease, the actual square footage is not ascertainable, and the tenant may put into his amendments the following provision:

SQUARE FOOT DETERMINATION . The estimated square footage of the facility being leased is ____ square feet. Subsequent to the construction of the facility, a field measurement will be made for purposes of ascertaining actual square footage and rent payments due. The square footage will be calculated on the area within the interior surface of the perimeter walls.

2.5 RIGHTS AND RESTRICTIONS

The tenant should be aware of his rights pertaining to the premises. For example, he should be aware of his rights and privileges with regard to common areas that may be provided by the landlord for tenant use. In addition, restrictions that limit or restrict his use of the premises must be also understood.

The provisions in the lease relating to the condition of the premises and the obligation to maintain and repair them are extremely important. The tenant should be satisfied that the condition of the premises is sufficient to permit the intended use.

Other questions regarding rights and restrictions to consider include:


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• Does the local zoning code permit your business in the building? In some towns, the codes strictly limit where professionals may practice.

• Will you have access to your suite at whatever hours you choose?

• How many parking spaces will be guaranteed for use by you and your clients and employees? If the building is not fully rented, what now looks like ample parking space could turn out to be entirely inadequate when all the offices are occupied. You'll need space for each staff member, and for as many clients as you have in the office at peak hours.

• Will there be any limitation to the placement of your name on the building's directory or on your office door? Some leases prohibit signs of any kind.

• Can a person who sub-leases your office list his name on the directory?

• To whom are insurance proceeds, if any, to be paid if the premises are damaged or destroyed. The tenant must be satisfied that monies will be available to maintain, repair or restore the premises.

One Arizona doctor practicing in a famous retirement community rented office space in a center which also housed the local unemployment office. On the first few days of every week the parking lot overflowed with cars belonging to claimants who came to get their unemployment checks. The doctor's patients couldn't find a place to park.

2.6 PARKING

While the illustration may be unusual, the tenant should be aware that parking could become a problem and, request that minimal exclusive parking be assigned or designated. A clause attempting to accomplish this is:

PARKING . It is understood between the parties that adequate parking is necessary to conduct tenant's business. In the event tenant, his staff and patients do not have six parking spaces available within 400 ft. from the front door of the office to them on two occasions during any calendar month, then landlord upon notice from tenant, shall mark six spaces exclusively for the use of tenant, tenant's staff and patients, within 400 ft. from the front door of the office.

You may even ask that designated handicapped parking be placed in front of your space. This often will provide you with additional visibility, but should be a consideration should your clientele include handicapped persons.

3. TERM OF THE LEASE


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3.1 GENERAL

The term of the lease is the period during which the tenant has the exclusive right to possession of the premises and the corresponding obligation to pay rent. A primary concern of all parties should be that the provisions governing the commencement and termination of the term are clear and unambiguous.

The date the first rental payment must be paid, which will be discussed in the next chapter, need not be the same date as the commencement date of the lease. In addition, options to renew or extend that have not been exercised are not considered part of the term.

3.2 HOW LONG SHOULD IT BE?

This is an often asked question and the most difficult to answer with precision. Depending on the rental market, a landlord's terms are not always negotiable. The tenant may find that he is at the mercy of the landlord because there may be twenty other people behind him, looking at the same property. The landlord may have driven such a hard bargain and charged a premium in rent that the tenant may want to sign a short-term lease contemplating a move at an early date.

If there is a space surplus in the neighborhood or facility, and it might take the landlord months to rent his facility in the neighborhood or facility, the landlord may give the tenant substantial concessions. Consequently, the tenant may want to sign the lease, locking in a longer term with the more favorable rental terms. Perhaps the question can best be answered by, "If you have a good deal, go long. If you have a bad deal, go short."

Typically, commercial leases run anywhere from three to ten years. Leases for a shorter duration would not be advisable to a tenant who wants to create repeat business with his clientele.

Where you have expended a considerable amount of money building-out or improving the facility, you may want to have a longer term to get the value of your investment back.

3.3 COMMENCEMENT DATE

Often the commencement date of the term of the lease coincides with the date of the lease agreement, and there is no room for ambiguity. However, in many commercial leases, the commencement date of the term depends on the occurrence of another event, such as with the completion of improvements which the landlord has agreed to build, receipt of a certificate of occupancy, actual occupancy, or opening of the offices.

When the commencement of the term of the lease depends on the occurrence of another event, the tenant will want to insure that the test be met and that the


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commencement of the rental obligation is clearly defined. Potentially ambiguous provisions such as "substantial completion" of the construction should be supplemented with more objective tests such as the production of an architect's certificate or a municipal government's certificate of occupancy. The premises should be clean and other important parts of the building such as elevators, parking lots, and washrooms, should be usable as well.

Just as important as when the lease will begin is to determine for sure that your predecessor tenant has moved out. Unless the space you agree to occupy is already vacant and remodeled to fit your needs exactly, all kinds of last minute problems can occur. An old tenant refusing to move out, construction not finished on schedule, disagreements rising about whether you can gain access to install fixtures and make your own improvements, etc., are illustrations of things that can go wrong and can be avoided by prior scrutiny, discussions and making provisions in your amendments.

Your lease should clearly spell out what happens if the space is not ready by the move-in date, and what adjustments in rent will be made by the landlord. It is advisable to point out to the landlord that should you fail to open on schedule, you will lose thousands of dollars of income during that first month, not to mention the cost of maintaining staff, misspent advertising dollars and other overhead expenses while awaiting occupancy.

3.4 OPTION TO RENEW

An option to renew, gives the tenant the unilateral ability to exercise his right to continue to rent the space beyond the original terms of the lease. It specifies all of the terms and conditions of the lease renewal, and gives greater certainty to the tenant as the lease term nears expiration. It will specify the length of the extended term.

But the option, standing alone, is not enough. The parties must attempt to determine a fair rental payment far in advance of the extended term. Otherwise, the tenant may exercise his option only to find out that the landlord has increased the rent beyond a fair price. Where the lease is for a long term in the first place, pegging appropriate future rental value is especially difficult.

The rental rate during the extended term may be fixed in a number of ways. For example, the lease may continue at: • The current rate • A rate increased by the escalator clause • A given percentage • A rate ascertained by a local real estate organization reflecting the

prevailing commercial rate for similar properties, or • The lease will be renewed on the same terms and conditions provided in

the original lease.

Care should be taken to see that the renewal provisions in the lease are clear, including the requirements for notice by the tenant to the landlord, the date by which notice must


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be given, and the rental rate due during the extended term. An option-to-renew clause which may be used, is:

OPTION TO RENEW. Tenant is hereby granted and shall have an option to renew or extend the term of this lease for an additional period of _____ years from the termination date of this lease, on the same terms, conditions and amendments of this lease (or the alternative negotiated rate). This option shall be exercised by tenant's delivering to landlord, in person or by United States registered or certified mail on or before _____, 20__ , written notice of his election to renew or extend the term of this lease as herein provided.

3.5 TERMINATION

A lease may be terminated by expiration of the specified period, or earlier by the parties, according to the terms of the lease. When the term of a lease ends for any reason, the tenant's right of possession and obligation to pay rent also ends.

When your termination is prior to the expiration of the lease and is without the landlord's consent, you may be in default under the lease. This is discussed later in Section 9.

3.6 YOUR RIGHTS IF YOU SUBLEASE

A tenant who sub-leases must become aware of the terms of the original lease. A sub-tenant's rights can be no greater than his sub-landlord's, the original tenant. For example, a termination of the original lease will terminate the sub-lease. Therefore, if you contemplate a lease in which you will be a sub-tenant, you may consider as an alternative, negotiating an agreement directly with the original landlord to protect your rights in the event of default by the sub-landlord.

3.7 HOLDOVER TENANCIES

A tenant who elects not to renew the lease but continues his occupancy after the expiration of the initial term, may find that the law will treat the act of "holding over" as an election to renew for an additional full term. To avoid this you may want to include this provision in your amendment:

TENANT'S HOLDING OVER.In the event tenant does not renew or extend the term of this lease and holds over beyond the expiration of the term, the holding over will be deemed a month-to-month tenancy only at the rental of an amount not to exceed the last rental payment due under this agreement, payable on the same day of each and every month thereafter until the tenancy is terminated in a manner provided by law.

4. RENT


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4.1 DEFINITIONS AND TYPES OF LEASE AGREEMENTS

How much is the rent? Rent, unlike almost any other cost of doing business, is a fairly inflexible part of your overhead. It may, however, be difficult to make cost comparisons.

Commercial rents are generally measured by the annual cost per square foot of the space, and there are at least five common ways to calculate. Each uses square footage as the basis for comparisons.

A gross lease, also called a "full service" lease simply requires a tenant to pay a flat monthly amount. The landlord is responsible for all the expenses of operating the building, including taxes, insurance and repairs, heat and electricity.

A net lease requires a tenant to pay for some or all of the real estate taxes, in addition to base rent.

A net-net lease, also called a "semi-net" or "double net" lease, goes a step further: Besides base rent and taxes, a tenant pays for insurance on the space he occupies.

A "triple net" lease effectively passes on all the costs of operating the building, including insurance, taxes, utilities, repairs and maintenance, in addition to the rent. Since 1974, when the oil prices caused utility costs to escalate rapidly, this has been the most commonly used type of lease.

A percentage lease in which an additional rent predicted on a percentage of gross sales or income is a special type of rental arrangement that applies to retailers, especially in multiple tenant malls or shopping centers. This would not and should not apply to an office lease.

4.2 ESCALATOR CLAUSES

How much will the rent go up during the term of the lease? Not very long ago, the cost of operating a property rose so slowly that an owner could catch up simply by raising his rents every time a new tenant moved in when a lease expired or was renewed. Now, however, costs are so unpredictable that most landlords feel they need some protection in the form of escalation clauses, during the course of even a short lease.

This periodic increase in rent is usually triggered by what is called the "escalator clause." It is a clause designed to compensate the landlord for his increase in costs due to inflation.

The rent may fluctuate, or only increase, as a function of an external standard or index, usually an economic indicator. The most common index is the Consumer


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Price Index (often called the CPI or the cost-of-living index), published by the Bureau of Labor Statistics of the United States Department of Labor. While this index does not necessarily reflect changes in value of real estate (including rental values), it is commonly used because it is widely published and easy to administer. When using the CPI, there are more refined variations which the parties can select: the index for "Urban Wage Earners and Clerical Workers" (the CPI-W), or the one for "All Urban Consumers," (the CPI-U), and the one most often used being the index for "Major Urban Areas" or the "Nationwide Index" (the CPI). Other government indexes may also be used.

Exhibit G, the CPI illustration, shows that between 1982 and 1988, the CPI generally was in the 4 to 4.25 percent range, and attempts by the landlord to use a percentage increase over 5 ½ to 6 percent should be resisted by the tenant. Information about current rates may often be obtained by calling your local library and asking for the Reference Desk.

Another common type of escalation clause builds in regular step-ups in rent over the course of the lease; others pass on prorated increases in taxes, heat, maintenance, and other direct costs.

Tenants should be aware that leases often include more than one escalator clause. This would allow the landlord to recoup his increased cost more than once. For example, there may be a consumer price index clause, as well as a clause that provides an increase if taxes rise. Since the index usually takes into account any general tax increase, the tenant should consider negotiating a clause for less than the full consumer price index. If the landlord wants both the full index and allowances for rising operating costs, the tenant should try to get one or the other taken out, on the grounds that the landlord is protected under each provision.

Another negotiable point would be to ask for a reduced escalation percentage based on the fact that the portion of the landlord's costs attributable to his mortgage most likely doesn't increase each year, consequently there should be some escalation relief given to the tenant. For example, assuming a four percent CPI, and the monthly rental having been set at $2,000 a month, the annual increase on the total rent would be $960. If in the $2,000 total rent, $1,200 per month is attributable to the mortgage, the landlord's costs which would escalate would only be $800. The annual increase in rent applied to this portion would only be $320. You would have saved approximately $480 each year.

Even though Exhibit G demonstrates relative stability in the cost of living in the 1980's, it could increase dramatically sometime in the future. To protect yourself from this eventuality you might try to negotiate for this provision:

ESCALATOR CAPThe escalator clause in this lease will at no time during the term of this lease increase more than two (2) per cent per year, nor a total of four (4) percent of the base year, the base year being the first year of this lease.

Escalators are a negotiable item. It's especially important for you to exercise your


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best bargaining skill here.

4.3 DEFERRED RENT

This could be the most significant area in the lease negotiation process. The tenant should ask for a complete rent forgiveness or reduction during the first few months. The area custom and the landlord's need to have your rental income often affect the availability of this concession. THERE IS NO HARM IN ASKING!

While a total rent forgiveness during the early months would be ideal, the tenant should have a fallback position or alternative to rent not being completely forgiven. In this scenario, the tenant should ask that no rent be paid for the initial period, i.e., six months, but the rent that would have been paid during this period will be paid at a later time, i.e., apportioned over the 13th through the 24th month, with interest. This way, you have a "win-win" proposal for the landlord to consider. He gets his rent with interest, although at a later time. Other backup positions in the bargaining process, assuming you started by asking for six months free rent, would be: Four months free rent.

Two months free rent.

A reduced rent during the first six months, i.e. one-half the rent. This way the landlord has some income to pay his expenses and mortgage.

Beginning payments at the end of the first month in business, since there is no income until then.

When you are able to occupy the building.

Set a designated date.

The reasoning for negotiating hard on this point is particularly important for a new business. It is not uncommon for the beginning business person to have few tangible assets, no credit history, large student loans, and no co-signers. He is faced with four financial hurdles mentioned earlier: The purchase or lease of equipment.

The build-out of the leased facility.

The leasing of the facility.

The working capital loan.

The latter hurdle, and usually the most difficult, is obtaining a "working capital loan" to pay the pre-opening expenses and the early months' negative cash flow


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experienced by most new businesses.

Exhibit E is the pro forma of a typical new doctor's business plan. Although the doctor may have provided $14,700 in services, you can see that the actual cash income during the first month was only $5,552. After taking out his operating expenses of $10,710, and his take-home draw or salary of $3,000, the "negative cash flow" for the first month was $8,158.

The business has deficits during the pre-opening period and first few months of $52,770, $8,158, $5,732, $1,121, until cash is left over after paying the monthly obligations. This amount of "negative cash flow" (totaling $67,781) is the minimum amount needed for a start-up or working capital loan. You might ask a banker for an additional amount for contingencies. In our illustration, if the landlord forgave or deferred the rent payment for just six months, you would be able to reduce your loan request $10,800, from $67,781 to $56,981. This significant reduction may make the difference in getting your working capital loan and avoiding costly delays in opening your doors.

Elsewhere in this book, we recommend that the tenant have the landlord finance the build-out. This would further reduce the working capital loan request an additional $15,000 to $41,980.

A provision to illustrate your request for a rent deferral might take the following form:

DEFERRED RENT SCHEDULE Not withstanding the commencement date of this lease the initial payments under this lease will be as shown below:

Payment ScheduleMonth (Date Due) Amount1 XX/XX/XX -0-2 XX/XX/XX -0-3 XX/XX/XX -0-4 XX/XX/XX -0-5 XX/XX/XX -0-6 XX/XX/XX -0-7 XX/XX/XX $XXX.XX

You would use the above clause by inserting the normal due dates but also by inserting your proposed payment schedule. For example, if you were asking for six months free rent, zeros would appear under the amount column for the first six months.

4.4 OTHER RENT REDUCTIONS

There are some conditions, which if they were to occur would cause the tenant to


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want to cancel his lease, or at least get rent concessions in the future. Some of these situations could be anticipated with this clause:

RENT REDUCTIONS OR ABATEMENTS. Rent will be reduced or abated in the following circumstances:

In the event of damage by fire or other hazard to the premises, if the premises are not restored within a reasonable period of time or if they are substantially destroyed;

If the premises become unfit for use, such as after a damaging fire or storm;

I f the building is condemned by the local municipality;

If the property is "taken", purchased or restricted by a governmental unit;

If you have expenditures relating to the construction of permanent improvements that will benefit the landlord;

If the services to be provided by the landlord, such as water, electricity or elevator service, are interrupted for more than a (stated number) of days;

If there is a violation by the landlord of any provisions contained in the lease, such as a major tenant's failure to open for business.

4.5 PREPAID RENT

Landlords often require that tenants pay one or more months of rent in advance, to be applied to the rent due during the last months of the lease. If you are just opening your business, you would help your "negative cash flow" and ability to get your working capital loan by trying to avoid this large expenditure during the first ten months. Perhaps the landlord would accept this deposit being paid later in the lease term, or would omit it completely.

4.6 SECURITY DEPOSITS

A common source of misunderstanding between tenant and landlord and a common subject of complaint to public agencies is the security deposit. Some leases may depart from the law or even violate it. The money is held by the landlord to compensate for any unpaid rent or damage to the property. It must be refunded shortly after the tenant's departure, along with an explanation of any deductions.

Those deductions, however, must cover damage or dirt beyond usual residue cleaned up between tenants, i.e., damage other than ordinary wear and tear. The owner pays for that, with the cost of the "ordinary" clean up built into the rent.


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Unfortunately, there is no universal definition of "ordinary wear and tear," and the landlord usually applies his own after the tenant has left - precipitating a long-distance argument that might have been averted if the landlord and tenant took a pre-occupancy and pre-exit walk-through to agree on who fixes what damages.

Although ordinary wear and tear is not well defined, the law and the courts generally say a landlord cannot charge extra to clean it up - neither by deducting from the security deposit nor by charging a "cleaning fee" or a "restoration fee" or anything else similarly named. Nor can the landlord say that any portion of a security deposit is non-refundable.

In addition to asking for a delay or reductions in rent in the payment schedule, another negotiating point is the elimination or delay in paying of the security deposit. This could amount to a $1,000 to $2,000 savings at a time when the new business does not have ready cash, while simultaneously reducing the need for borrowing that amount from a bank as part of the working capital loan.

Most jurisdictions have particular requirements regarding security deposits, such as an obligation on the part of the landlord to pay interest on the funds or at least not to co-mingle them with other assets.

In the absence of a clear description of how the security deposit should operate, you might include this clause in your amendment:

SECURITY DEPOSITThe security deposit referred to in Paragraph ___of this lease shall be applied only to the cost of repairs for damage caused by tenant's use of the premises beyond normal wear and tear. In the event that the premises are returned in the agreed-upon condition, the security deposit or pro-rata proportion will be refunded to the tenant within 14 days after written request by the tenant.

You may try to negotiate the elimination of the security deposit, or the deferral of its payment until a later date. Again your objective is to avoid making any payments during the first few months of your business. If you can only negotiate a deferral, use this clause:

SECURITY DEPOSIT.Payment of any security deposit required by this lease is deferred until the eleventh (11th) month of this lease.

4.7 UTILITIES CHARGES

Many leases may require the tenant to contract directly for water, gas and electricity. The tenant is usually required to install any necessary meters and, subject to certain limitations, may use the landlord's distribution system. This can be an expensive item, where cost estimates should be obtained and included in the budget.


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In other leases, the landlord may provide the tenant with electricity on an electrical inclusion or a sub-metered basis. In such cases, the tenant will want to be certain that its costs will not be greater than the amount required if the electricity is purchased directly from a public utility.

4.8 REAL ESTATE TAXES

The tenant is often required to pay his share of real estate taxes on the building or shopping center in which the premises are located, or his share of the escalation of such real estate taxes over a base amount.

Usually, the real estate taxes are defined to mean real estate taxes and assessments levied against the building, complex or shopping center of which the premises form a part and do not include penalties or interest or income, franchise, transfer, inheritance or capital stock taxes. These latter special items and other special assessments should be specifically and separately addressed and when called for, paid in installments within the lease term.

The tenant's share is usually determined by dividing the rentable area of the premises by the entire rentable area of the building complex or shopping center. The tenant's share, often referred to as "tenant's proportionate share," is usually expressed as a percentage. In an office building, basement space frequently is either excluded in determining the rentable area of the building or a percentage of it is excluded. In determining the tenant's proportionate share with respect to a shopping center lease, consideration must be given to whether mezzanines, basements, storage areas and drive-through porticoes are fully or partially included in, or are excluded from, the calculation. Again, consideration should be given to whether space inside the perimeter wall is being charged to you.

If the tenant is only required to pay its share of real estate tax increases, a base for such determination must be set forth in the lease. This is usually expressed as the real estate taxes for a specific year or the average for two tax years.

The tenant's improvement of the premises will not usually increase the assessed value of the building. However, extensive tenant improvements may precipitate an increase in the assessment, for which the tenant should be liable.

Many jurisdictions impose personal property taxes on the tenant's personal property and fixtures. The tenant may be required to pay such taxes.

5. OBLIGATIONS OF THE LANDLORD

5.1 CONDITION OF PREMISES AND REPAIRS


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Upon entering the premises you assume everything is safely constructed and ready for occupancy, but you should have a clause stating:

DEFECTIVE CONDITIONSTenant does not take the responsibility for any defects or conditions existing at the time of occupancy and will provide a list of any readily detectable defects to the landlord within 30 days after occupancy.

Who repairs what? The most common area of disputes between landlords and office tenants is repairs. Very often problems arise because of ambiguities in the lease provisions.

If your lease holds the landlord responsible for replacing integral parts of the facility while you are responsible for repairs, that's not good enough. When something breaks down, the landlord may insist on repairs when replacement is clearly called for.

Also not good enough is a lease that holds the landlord responsible for major repairs and the tenants for minor repairs. What is a major repair as compared to a minor repair? Can you say that only repairs about $10,000 are major?

Some leases specify that the landlord is responsible for repairs over a certain amount, but this can lead to disputes because of varying repair estimates from "friendly estimators."

What should the lease say instead? To begin with, it should make the landlord responsible for any repairs to the building's exterior (roof, sidewalks, parking lot). While the tenant is normally responsible for the interior of his own office, the landlord should be responsible for major interior repairs. You should specify which interior repairs, however. These would include work required because a water pipe burst behind the wall, replacement of cracked plaster walls, or repair of broken picture windows. Minor repairs which the tenant can be expected to repair, would include such items as a leaky faucet, clogged sink or broken room air conditioner.

Lists of what repairs are whose responsibility, should be as comprehensive as possible. The law holds that if anything is not included, it was intentionally excluded. A provision you might use is:

LIMITATION ON TENANT’S REPAIR RESPONSIBILITIES Tenant will be liable only for repairs caused by his action or use. Tenant is not responsible for the following:

a) Normal wear and tearb) Structural defectsc) Latent defectsd) Air conditioning, and heating maintenance and repaire) Repairs covered under any insurance policy held by landlordf) Damages caused by natural disasters


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Deciding who is responsible is only part of the solution to a maintenance or repair problem. The other part involves getting the job done. If the landlord fails to fulfill his responsibilities, then the tenant should be in the position to make the repairs himself. This could be accomplished with the use of the following clause:

TENANT'S RIGHT TO REPAIR FOR LANDLORD OR VACATE If, within a reasonable time after tenant's notice to landlord of repairs or maintenance which landlord has a duty to repair, landlord neglects to make such repairs, tenant may repair the same himself, where the cost of the repairs does not require an expenditure greater than $500.00 and deduct the expenses of such repairs from the rent; or tenant may vacate the premises, in which case he shall be discharged from further payment of rent or performance of other conditions. For the purpose of this paragraph, if tenant makes repairs at least 30 days following his giving notice to the landlord, he will be presumed to have acted after a reasonable time.

5.2 OPERATING AND MAINTENANCE OF BUILDING EXPENSE Shopping center and office space leases often provide for the tenant to pay its proportionate share of the costs of operating and maintaining the building. In addition, under the customary escalation clause, the tenant is required to pay its proportionate share of the increase in operating expenses over those expenses for the base period.

Operating expenses are usually defined to include all costs and expenses paid or incurred by the landlord with respect to the operation, cleaning, repair, management, security and maintenance of the building, including its corridors, lobbies, stairs, and elevators.

Customarily included are: labor costs, materials and supplies; replacement costs of worn-out or obsolete tools and equipment; repair and maintenance of building systems; professional and management fees; contractor's charges for services, materials and supplies; window cleaning and janitorial services; costs for electricity, steam and other utilities; water charges and sewer rents.

Generally excluded and items which should not be included are: cost of repairs caused by the landlord's negligence; salaries of executives above the grade of building manager; advertising; brokerage fees, legal fees for leasing and enforcement; cost of any item reimbursed by insurance; management fees in excess of those generally charged comparable first-class buildings; capital expenditures, unless the capital expenditure is made to reduce operating expenses.

When there are multiple tenants, the share is generally prorated among them. At times, the formula is the square footage of the tenant's space in relation to the square footage space leased and occupied. However, it is to the tenant's advantage to compute the tenant's share by relating its square footage to the gross leasable area, thus placing the risk of vacancy upon the landlord. Other landlords may prefer to set a flat charge per square foot, which may be indexed


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in much the same manner as the tenant's base rent.

Leases of free-standing buildings often impose all or most repair and maintenance obligations on the tenant.

The landlord may also agree to maintain the electrical, plumbing, sewage and air conditioning systems to the extent that they are outside the individual premises of the tenant. In a shopping center, the landlord may also be obligated to resurface the parking areas at specified intervals.

In a multi-tenant building, heating, ventilation and air conditioning (commonly referred to as HVAC) may be the landlord's responsibility. The tenant may want to attach a HVAC schedule on the lease itself and even specify what services are to be provided on state or federal holidays. Normally, HVAC services in larger buildings are available during the weekdays from 8:00 a.m. to 5:00 p.m. and on Saturdays, from 8:00 a.m. to 1:00 p.m. This may not be adequate for some offices. Also, consider the fact that commercial office buildings must comply with maximum and minimum temperatures for energy conservation. Healthcare offices are usually exempt from this, but you may have to supply supplemental heating and cooling yourself.

If your lease provides for an additional maintenance assessment it would be wise to review this section and write an amendment provision which is specific as to which costs are to be included.

5.3 COMMON AREA CHARGES

In shopping center leases and office parks, the costs of maintaining and operating the common areas are customarily passed on to tenants in accordance with their respective proportionate shares. Sometimes referred to as CAM fees, they often include expenses such as: electricity to light the common areas, water for the sprinkler systems, repairs and maintenance on the sprinklers, insurance on the common areas, reserves for resurfacing the parking lot, and striping. As with the definition of operating and maintenance expenses, the components of common area maintenance costs should be examined carefully.

In order to make sure you are not assessed for expenses which should ordinarily be paid by the landlord, you may want to provide:


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NOT COMMON AREA EXPENSES Landlord's common area expenses may not include: 1) capital improvements, 2) exorbitant or higher than standard managerial personnel salaries, 3) the price differential in utility expenses which may be acquired by landlord at wholesale cost and charged to tenant at a retail price, 4) property assessments that may permissibly be paid on an installment basis subsequent to the lease termination, 5) expenses of build-out or building alterations to accommodate other tenants, 6) "overhead" expenses for off-premises managers or owners, 7) profits realized on maintenance or repairs performed by landlord on landlord's related entities or affiliates, 8) penalties and other costs incurred for violations by landlord of codes, ordinances or other laws, and 9) rent-loss insurance.

5.4 CLEANING SERVICES

Cleaning services can make a big difference in the appearance your business makes to the public. You should be able to obtain a specific schedule of how often the building will be cleaned and who is responsible for such housekeeping details as cleaning your restrooms and taking out the trash. If your landlord provides these services, the following is a sample of janitorial cleaning functions you may negotiate for, with recommended frequency:

JANITORIAL CLEANING PROCEDURES

1. Polishing and dusting all furniture Daily

2. Washing and buffing all floors Daily

3. Cleaning all glass surfaces Daily

4. Disinfecting all bathrooms; Scrubbing sinks, toilets, urinals; Washing stall walls, handles and doorknobs; Cleaning mirrors; Wiping vanity Daily

5. Collecting and disposing of all garbage and replacing liners Daily

6. Cleaning all glass doors and surrounding areas Daily

7. Vacuuming all carpeted floor areas Daily

8. Sweeping and/or vacuuming outside entrances Daily

9. Sweeping and/or dust-mopping floor areas Daily

10. Wiping telephone receivers with disinfectant Daily


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11. Vacuuming drapes and/or blinds As Needed

12. Vacuuming lamp shades Monthly

13. Vacuuming furniture Monthly

14. Vacuuming baseboards As Needed

15. Wiping window sills Weekly

16. Dusting pictures and frames Weekly

17. Special care of wood floors As Needed

18. Cleaning glass partitions Monthly(Spot cleaning daily)

19. Scrubbing and stripping floors As Needed

5.5 LANDLORD’S SERVICES

As a general rule the landlord has no duty to provide services to the premises unless the tenant obtains a written agreement from the landlord, i.e., as a provision in the amendment. Otherwise the tenant takes the premises as he finds them.

Consequently, a detailed description of services expected from the landlord should be included in the amendments. Some areas a tenant would want to include in the amendment are any combination of the following:

• Hot, cold, and refrigerated water

• Electricity during specified hours • Maintenance and replacement of building standard light fixtures and

bulbs

• Janitorial services (See Sec. 5.4)

• Security services (when and by whom provided) • Restroom facilities and maintenance of the facilities • Building directory listings (quantity, location and ability to change them)

• Reception

• Conference facilities


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• Kitchen and snack areas

• Mail handling and accessibility

• Secretarial services

• Photocopy and Fax services

An example of a Schedule of Services which may be amended to your lease is shown as Exhibit F.

Should you need access to the utilities during the build-out phase prior to the beginning of the term of the lease, it would be wise to negotiate for this provision:

UTILITIES DURING CONSTRUCTION. Landlord will provide at no cost to tenant, heat, air conditioning, and electric power for trades engaged by tenant, and at work in the leased facility before the beginning of the term of the lease.

5.6 LANDLORD'S DEFAULT

For the most part, if a landlord provides a dry building with adequate temperature controls, he has met his side of the bargain. For this reason, an amendment provides other specific obligations to the landlord to protect the tenant.

Courts may allow residential tenants to withhold their rent if their premises aren't habitable - if there's no heat in winter, for example. But under the same conditions, commercial tenants still must pay their rent. To force the landlord to make the premises fit to work in, they have to sue. On the other hand, if commercial tenants leave because they do not have "full use and enjoyment" of the leased property, they can argue that they have, in effect, been evicted. In that case, they do not have to continue paying rent. An amendment provision to consider would be:

TENANT’S REMEDIES If landlord defaults in the performance of any term, covenant or condition required to be performed by him under this agreement, tenant may elect either one of the following, in addition to any other remedy provided within the lease, addendum, or at law or equity:

After not less than 30 days notice to landlord:

1. Tenant may remedy such default by any necessary action, and in connection with such remedy, may pay expenses and employ counsel. All reasonable monies spent or obligations incurred by tenant in connection therewith shall be paid by landlord to tenant on demand. On failure of such reimbursement, tenant may, in addition to any other right or remedy that tenant may have, deduct the costs and expenses thereof from rent


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subsequently becoming due;

or

2. Tenant may elect to terminate this agreement on giving at least 30 days notice to landlord of such intention, thereby terminating this agreement on the date designated in such notice, unless landlord shall have cured such default prior to the end of the 30-day period.

5.7 NON-COMPETITION CLAUSES

"Exclusives" grant to the tenant an exclusive right to engage in a certain line of business on the landlord's premises. You should try to preclude the landlord from leasing to competitors, or have the landlord grant you broad rights of approval with respect to other tenants and their activities. Failure to have this could be very costly to a business.

The clause should not be over-broad, however, since it may be to your advantage to have related occupations or services as neighbors.

A suggested provision that can be included in your amendment is:

NON-COMPETITIONThe landlord agrees not to permit a competitive business, including but not limited to, (list competitive businesses) to lease space within the building or complex of buildings under control of the landlord in the same neighborhood.

On the other hand, a tenant may want to negotiate some flexibility in his use of the rented space.

TENANT'S PROFESSIONAL SERVICES. Tenant may, at his discretion, engage, share space, sublet or associate with an additional business person or related service provider in his business. Regardless of the contractual relationship between tenant and the additional business, no provisions of the lease or this amendment will prohibit the use of the leased space for this purpose.

This provision anticipates any problem with the assignment and subletting limitations which are discussed later:

6. OBLIGATIONS OF TENANT


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6.1 HOLD HARMLESS CLAUSES

Watch for a "hold harmless" clause. It could make you liable for damage your landlord causes.

In the hold harmless clauses of many commercial leases, the tenant promises he will be responsible for the damage he causes, will reimburse the landlord for resulting costs, and won't sue the landlord for accidents. This seems fair. After all, if you leave faucets running and ruin the downstairs tenants' wallpaper, it's reasonable for you to pay the bills your neighbor is sure to send the landlord. But beware. Courts in come states have interpreted such hold harmless clauses to mean that tenants agree to reimburse landlords even for damage the landlord causes.

Very often, landlords will require the tenant to provide insurance coverage to protect themselves. This is discussed in Section 8.

Your best protection from such hold harmless clauses is to agree to indemnify the landlord only for harm you cause within the space you lease

LIMITATIONS ON HOLD HARMLESS CLAUSE Tenant will not be responsible to landlord for any costs or obligations arising from an event for which the tenant is not responsible.

6.2 RESTORATION CLAUSES

Leases customarily provide that at the end of the lease the tenant must restore the facility to its original condition. This requirement should be qualified by the phrase, "subject to reasonable wear and tear."

As we discussed earlier, if you are planning to make extensive changes in an office, beware of this clause. Make sure the landlord agrees to the alterations you make and agrees that you do not have to restore the building to the pre-alteration condition. For example: If you anticipate drilling holes in the walls to install equipment, provide in your lease the extent to which you must restore the facility to its original condition. Is patching enough? Must you also paint or re-wallpaper?

6.3 IMPROVEMENTS, BUILDOUTS AND RENOVATIONS

A Florida businessman learned this lesson the hard way. He had just installed a handsome new built-in reception desk. He was dismayed to learn he'd have to leave it behind when he moved.

Agreements about improvements, build-outs or renovations should be in writing, preferably with a detailed floor plan and an estimate of costs from a contractor before the lease is signed. This document, called a "work-letter," should also specify who owns any improvements. Unless you agree otherwise, anything a tenant attaches to the space he occupies (air-conditioners, light fixtures, shelving, cabinets, X-ray


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equipment, even his own office equipment) will belong to the landlord.

6.4 SIGNS

A Southern California chiropractor once was confronted with a landlord who insisted that the doctor remove his large, colorful, previously agreed to sign from the front of the building, explaining to the doctor that the other tenants were unhappy with the sign. The doctor called his attorney who had advised him to document his sign requirements in the amendments to his lease. After confirming the fact that he had properly documented his sign requirements, the doctor was able to quickly and bluntly suggest to the landlord that the sign was a material provision in his lease, and that he would enforce the agreement against the landlord if necessary. The landlord's case was put to rest.

The tenant will want effective signage. It's important that he specify his requirements in writing, or by illustration as shown in Exhibit C.


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You may tie in the sample Exhibit C by using:

SIGN EXHIBIT It is understood that tenant has a significant and material interest in having a sign(s) announcing the location of his office. For this reason, the parties agree that a sign(s) will be placed in locations described in Exhibit ___ and will be the size and shape, and will have the general appearance of the sign described in Exhibit___.

The tenant should identify and include as part of his amendment provisions where the landlord is providing the power source for illuminated signage. The difference in cost between the power source being at the base of the sign versus coming from a circuit box at the rear of the building could be hundreds of dollars.

In installing the signs, the tenant may anticipate making structural modifications which would be expensive to restore to the original condition at the end of the lease. The tenant may negotiate for this clause:

SIGNS Tenant shall have the right to erect signs on any portion of the leased premises, including, but not limited to, the outside walls, front elevation, or facade of the building, subject to applicable laws and deed restrictions. Tenant shall remove all signs at the end of this lease, and shall repair any damage. Tenant will not be responsible for closing holes caused by such removal.

6.5 COMPLIANCE WITH LAWS

In general, an owner of real property is required to comply with all laws affecting the property. A landlord may want to pass the obligation to comply with laws to the tenants of the building. The obligation to comply with laws is separate from the duty to repair, since a building may be in good repair but not in compliance with applicable zoning ordinances and other laws. You may expect the lease to provide that the tenant is obligated to comply not only with all laws affecting the premises at the time the lease is executed, but also with all such laws that may be enacted in the future.

A tenant should attempt to negotiate a provision in the lease stating:

BUILDING STRUCTURAL CHANGES Tenant is not responsible for compliance with laws that require structural or other changes to the building, if such changes are not required by the particular use or manner of occupancy of the tenant. In such cases, landlord shall comply with such laws.

6.6 RIGHT TO TERMINATE

Negotiate the right to terminate your lease after a major casualty. Otherwise, you may find yourself paying rent on two places, the one you're forced to move out of and the one you're forced to move into.

The general rule is that once you have signed a lease, you are liable until the end of the


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term - no matter if the building should burn down, blow away, or be flooded out. If you have not negotiated the right to terminate, you risk a serious cash drain should an accident destroy your offices. You may consider using this provision:

OPTION TO TERMINATE IN THE EVENT OF DESTRUCTION In the event that the premises shall be partially or totally destroyed by fire or other casualty, or are otherwise rendered unacceptable for the purposes of operating the tenant's business for more than ten working days, the tenant may elect to terminate the lease at his discretion with no loss of deposit and without prejudice. In the event that the tenant elects to continue leasing the premises, the rent payable hereunder during the remaining portion of this lease shall be adjusted equitably.

On the other hand you may want to protect your location and interest in the lease. To avoid the landlord's canceling of the lease you may include:

CANCELATION DUE TO DESTRUCTIONIn the event of a fire, flood, or natural disaster, landlord may not cancel this lease unless fifty percent (50%) of the entire building is destroyed.

Before you agree to take space as a sub-tenant, read the master lease - you will be vulnerable if the tenant has not negotiated the kinds of protection suggested here. If you do not already have it, you might want to consider getting business interruption, or property and casualty insurance. That way, if you suffer a casualty, you will have the money to find other quarters immediately.

6.7 USE CLAUSE

In order to limit the tenant's use of the premises, a lease must expressly state the purpose for which the tenant is allowed to use the premises. You should avoid any such limitation and should add a clause allowing for services supportive of the scope of your business. For example, a chiropractor may want to be able to sublease to an acupuncturist, massage therapist, or physical therapist. This will allow the tenant to bring in other services and allow subleases or space sharing agreements. See section 7.1 for further discussion.

6.8 LEGALITY OF USE

Prior to execution of a lease, it is important for the tenant to make certain that its intended use of the premises is permitted under applicable laws, particularly with respect to zoning and recorded restrictions. A tenant may want the landlord to represent that the tenant's particular use of the premises under the lease is permitted by law. A tenant may want the right to cancel the lease if its particular use of the premises is prohibited some time after execution.

7. ESCAPES AND CUSHIONS


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7.1 SUBLETTING AND ASSIGNMENTS

For many reasons a tenant may find himself in the position of wanting to get out of the lease obligation but has no legal way to break the lease. In this situation he may want to look at some "self-help" alternatives.

One method the tenant can use to avoid the continuing obligation of a lease is to assign or sublet the space. An assignment of the lease transfers the liability and obligation to make payments for the unexpired balance of the lease term to another person. A sublease involves renting the space to another party for part of the lease term, and the tenant continues paying the landlord under the lease. If the landlord consents, the space will be sublet or assigned in accordance with the request. In either case, the original tenant still remains liable for the obligations under the lease, even though the landlord may look first to the successor tenant for payment of the rent.

Landlords customarily want to make certain that a tenant cannot assign the lease or sublet any portion of the leased premises without the landlord's prior written consent. In the majority of states, a landlord may withhold his consent to a sublease or assignment arbitrarily and capriciously. If the landlord consents, the building will be sublet or assigned in accordance with the request.

In some states, including California, if assignment is prohibited absolutely, the landlord's remedies upon the tenant's default will be limited to termination of the lease and recovery of damages. The landlord will not be able to continue the lease in effect and recover the rent as it becomes due. The California Court of Appeals held that the duty of good faith and fair dealing implicit in the lease requires the landlord to act reasonably in withholding its consent to an assignment and that a breach of such duty breaches the lease. Courts have looked at factors such as the financial responsibility of the proposed assignee, the identity or business character of the assignee, the legality of the proposed use, and the nature and character of the assignee's occupancy in assessing whether a landlord is acting reasonably in withholding its consent.

The tenant may avoid any question by insisting that the phrase, " … but the landlord may not unreasonably withhold consent …," be added to the provision requiring the landlord's consent to the assignment or sublease. You may include the following clause in your amendments:

LANDLORD'S CONSENT Landlord's consent to any assignment or sublease will not be unreasonably withheld. With the clause suggested above, if the landlord unreasonably withholds his consent, he must release the tenant from the lease upon the tenant's request.

The tenant also has the right to compel the landlord to accept the sublease.

The tenant, in requesting the landlord's consent to an assignment or sublease, should prepare for the landlord a proposal which includes the following:


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The name, legal composition and address of any proposed assignee or

sub-tenant.

A complete copy of the proposed assignment agreement or sublease.

The best financial statement of the proposed assignee or sub-tenant, or such other statement acceptable to the landlord, audited or certified as correct by a financial officer of the proposed assignee or sub-tenant.

A description of the nature of the proposed assignee's or sub-tenant's business to be carried on in the premises.

The payments or other consideration to be given on account of the assignment or sublease.

By documenting your request for a proposed successor tenant, you may obtain a court’s favor should the landlord continue demanding rent.

A tenant’s rights to assign his lease may also be limited by the “use clauses” in the lease, in which the landlord limits the profession or type of business of a successor tenant. An extremely restrictive use clause obviously limits the tenant's possibilities for assignment. For this reason, the use clause must also be written broadly. For example, a suggested provision which a chiropractor might use would be:

ASSIGNMENT AND SUBLEASE TO BUSINESS ASSOCIATES Tenant may, at his discretion, engage or associate with other doctors, or other health practitioners, including but not limited to physical therapists, massage therapists, and acupuncturists. Regardless of the contractual relationship between tenant and the business associate, no provisions of this lease will prohibit the use of the leased space for this purpose, landlord's consent shall not be required in this instance, and there shall be no increase in rents or assessments.

The above suggested provision can be modified to apply to any business or profession.

A tenant may be required to pay the landlord's reasonable attorney's fee for reviewing and documenting any requested assignment or sublease, regardless of whether or not the landlord consents thereto.

7.2 SUBSTITUTION OF FORM OF BUSINESS

An unusual situation arose when a partnership of physicians in Connecticut decided to incorporate and they asked the landlord to assign their lease to their new corporation. The landlord refused. And though he later accepted checks from the corporation as rent, he sued the doctors for assigning their lease to another party without his permission. His motive was obvious. He wanted to renegotiate the lease at a higher rent.

The lease specified that if the tenants assigned or sublet the premises without the landlord's


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permission, the lease would terminate. Nevertheless, the judge ruled in favor of the physicians' corporation. He noted that there was no change in the nature and scope of the medical practice just because it had changed from a partnership to a corporation.

A tenant should specifically request the exception allowing him to modify the manner in which he chooses to operate his business. Often the tenant requests the right to assign to a partnership or corporation that the tenant will form for business or tax purposes. This provision should not encounter resistance from the landlord, as long as the original party remains liable for payments on the lease.

7.3 DISABILITY CLAUSES

What if the tenant depends on a single person for income and that person becomes unable to work?

There was a case of a Pennsylvania chiropractor who was disabled in an auto accident. She was unable to either sell the practice or find a substitute doctor. Among the problems was the fact that the lease did not give the doctor the right to cancel the lease if she became disabled. Because she had to pay three more years' rent, and she was her sole source of support, she was unable to manage finances and ended up filing for bankruptcy.

How can you protect yourself from this problem? Should you become disabled for an extended period of time, you may very well be forced out of business in which case you could face a continuing legal obligation to make lease payments for the remainder of the term. Should you die, your estate would inherit the same obligation. To avoid this, the tenant should attempt to have the lease cancelled after a specific period of time. The period of time should be long enough to ascertain the extent of disability, and allow sufficient time to have the business continue prior to a sale of the business by the tenant or his estate. A suggested clause might provide:

CANCELLATION ON DEATH OR DISABILITYIn the event of tenant's death, disability, loss of license to continue tenant's business, or in any other way lose privileges that substantially incapacitate his ability to maintain a normal income, that tenant may, at his option, cancel this lease within 120 days after notifying landlord of the disabling event.

7.4 SALE CLAUSES

Should you some day, for any reason (i.e., voluntary sale, disability or death), sell the business, you want to be in a position to have the purchaser become the assignee of the lease without having to negotiate a new lease with the landlord. Placing the purchaser in that position could often lead to "deal killing" problems with your sale negotiations. While these situations seem remote, they are most easily dealt with at the beginning of your lease negotiations by including this clause:

TENANT’S SALE OF BUSINESS Should tenant sell his business, or the assets of his business prior to the termination of the lease,


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tenant may assign all of his right, title, and interest to the remainder of the lease term to the purchaser without the landlord's consent.

7.5 THE CORPORATE TENANT

A Georgia businessman had entered into a lease of a $12,000 photocopier which turned out to be a "lemon." He refused to make further payments. The leasing company's attorney threatened to sue for the full amount due on the lease. Having followed 'his consultant's advice to incorporate and sign all legal obligations in the corporation's name, the businessman was able to point out to the opposing attorney that should the leasing company persist in its demands, the businessman would start a new corporation and close down his corporation which signed the lease and leave the leasing company with an "empty bag." The leasing company's attorney was well aware that the businessman could create a new corporation and continue doing business without its old obligations. The leasing company quietly took back its copier and was never heard from again.

This escape is available to tenants who are incorporated, and who sign the leases in their corporate name while avoiding signing the lease as co-signer or guarantor in their individual name.

If you incorporate, keep your corporation properly documented, and use your corporation in the usual course of your business, it will not be considered a "sham" corporation, and you can, with the guidance of an attorney and some defensive delays, virtually walk away from the lease. If the corporation stops generating income, and all of the corporate assets were to be routinely distributed to the other creditors, employees or owners, the corporation will have little value. The landlord's attorney will realize, or can be made to realize, the futility in making further demands or pursuing the enforcement of your lease obligation.

If you are already bound by the terms of a lease, and you incorporate, you may want to ask the landlord to renew the lease with your corporation as the tenant. Again, you want to avoid being a co-signer or giving a separate guarantee to the landlord.

7.6 CONDEMNATION

If the facility being leased is located in a place which might be condemned by a public body, you should include provisions in anticipation of this event. This occurs most often where new highways are built or existing highways are widened.

Ordinarily, a lease will provide that a total taking of the property by eminent domain (where a government agency "takes" the property for a necessary public use) will terminate the lease. Such a provision brings the tenant's obligation to pay rent to an end, but it will also have the effect of precluding the tenant from making a claim for the loss of value of the “unexpired” portion of the term. Accordingly, the tenant will want the lease to spell out the tenant's rights to apportionment should compensation be received for the value of the unexpired portion of the lease.


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If the tenant agrees to termination of the lease upon condemnation, the tenant normally waives any right to receive an award for the value of the leasehold and the improvements. Consequently, the landlord should provide for his being compensated for the value of the leasehold and the value of the improvements he has constructed.

The need to be concerned with this provision can largely be determined by physical inspection of the property. If the building is set back far from the street and is unlikely to become needed for public use, less concern need be expressed by the tenant. Also it takes a long time for governments to accomplish a "taking" and if one has been proposed this information is normally easily ascertainable by checking with municipal or state agencies.

8. INSURANCE

8.1 INSURANCE· OVERVIEW

Who is responsible for property, casualty and liability insurance? In the rush to firm up a lease, insurance rarely gets the attention it deserves. The result is that many buildings, especially whose with multiple tenants, are covered by overlapping and inadequate coverage, which invites problems in the form of long delays in the event of loss, while insurance companies try to sort out the various claims.

8.2 BASIC COVERAGE· LANDLORD'S OBLIGATIONS

Landlords in general are expected to carry a comprehensive policy on the building that covers liability for common areas, such as lobbies, stairways and elevators, and provides casualty protection for the building itself. To protect yourself, make sure that your lease holds the landlord liable when someone is injured in a common area, like a stairway or hallway. Also, have your own insurance agent check the landlord's coverage to make sure the scope and limits are adequate.

There should also be a provision which can be included as a provision in the lease amendment that the landlord must notify the tenant if the landlord's insurance lapses - and if it does, the lease expires immediately. This should deter landlords from letting their insurance lapse. But if the landlord just does not have the money to pay for the insurance or does not qualify for a policy renewal, the provision means that you won't have to pay the rent while you look for new quarters. And because you are not legally a tenant during this time, you won't be responsible for claims against the landlord. You may want to use a clause such as:

NOTICE OF LAPSE OF INSURANCEThe landlord must notify the tenant if his insurance lapses. If the insurance lapses, the tenant may elect to cancel the lease.


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8.3 BASIC COVERAGE • TENANT'S PROTECTION The tenant should carry the insurance for the interior of your office. Landlords may also insist that the tenants carry their own insurance to protect the landlord against claims that might arise from the conduct of the tenant's business. The tenant may be required to show the landlord as a "Loss Payee” on the tenant’s policy.

Buried in some leases may be a line saying that if a landlord is held liable for negligence of the tenant, the tenant will indemnify him. The tenant may not notice that line - and failing to notice it, he won't notify his insurance company. As a result, he will not have any liability coverage if someone sues the landlord. In some states, in fact, if a lease does not mention liability, the tenant may be the party held responsible, especially if the landlord is not regularly on the premises and the tenant was aware of the hazard that caused the injury.

A woman visiting a physician in a professional building in Florida caught her foot in the elevator doors. Elevator doors ordinarily reopen if they meet resistance, but these were defective, and the woman's foot was badly injured. Rather than undergo the risks in a lengthy trial, the tenants settled, paying $50,000 apiece, for a total of $500,000.

Many lawyers suggest that businesses consider comprehensive liability coverage providing protection, even if someone is injured in the common areas that are normally the landlord's responsibility. This is the safest route, even though it is more costly.

8.4 SCOPE OF INSURANCE COVERAGE

The lease should state whether the landlord or the tenant is required to maintain fire insurance on the building and on leasehold improvements to the premises. In any event the tenant should purchase insurance to protect his interest and property.

A combination policy providing protection for the building, its contents, liability to others, and crime coverage which is available for most tenants is what is known as a Business Owner's Policy. This policy will often provide basic coverage covering most circumstances and save you money by having a lower premium than you would experience by purchasing numerous separate policies.

The following are optional coverages usually offered in addition to basic coverages which the tenant should consider depending upon his circumstances:

Glass: A basic policy may have a limitation on coverage which would be insufficient to cover large expanses of glass or glass at different floors of a building.

Sign: While signs attach to a building are normally covered in basic policies, a sign detached from the building may not be covered. If covered, ascertain the amount of the coverage as it may be insufficient to cover these signs which are often expensive to replace or repair.

Employee dishonesty: Each tenant should ascertain how much loss it might suffer from a dishonest employee, then check the policy to determine if there is sufficient coverage.

Replacement costs: Many policies cover only actual cash value indemnity (they pay © DrFernandez.com 2008

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only for the depreciated value). This may not allow you to be fully compensated for the entire replacement cost of property which you would need to continue under the original conditions.

Leasehold interest: You may have entered into a lease with no unfavorable terms, or have a lease which has become valuable due to intervening circumstances, i.e., escalating rental rates in the area. This additional value can be protected by a special endorsement.

Improvements and betterments: Many tenants expend thousands of dollars for leasehold improvements (the build-out). The tenant should be sure that this investment is properly insured from loss due to fire or other peril.

Accounts receivable: Included in these polices are provisions to compensate the tenant for restoration of account receivables and other related losses.

You should check all of these areas to make sure whether the basic policy coverage or benefit provides adequate protection or whether you need additional optional coverage.

8.5 USE OF PROCEEDS

In the event of minor damage to the leased premises or to the building in which the leased premises are located, insofar as such damage is covered by insurance, the lease should obligate the party receiving the insurance proceeds to use those proceeds to repair the damage.

9. DEFAULT PROVISIONS

It is possible as time passes that the landlord may want to move a tenant out of his leased space; a larger adjacent tenant may want to expand; or the landlord may want to charge higher rents than those currently prevailing, or the landlord desires to change the tenant mix. A tenant, by failing to perform his duties according to the lease document could be placed in default, which would give the landlord the opportunity to remove him. Other than the clause reflecting the lease payment terms, the negotiation of the default clause is the most important.

On the one hand, the landlord will want the clause to enable him to act decisively by placing the tenant in default on the occasion of the tenant's failure to comply with the terms and conditions of the lease.

On the other hand, the tenant is confronted with numerous remedies available to the landlord in the event of his default. The tenant will want to protect himself by having the ability to obtain notice to cure his defaults, to reduce his exposure, and to retain his investment as much as is possible under the circumstances.


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9.1 PAYMENT, NOTICE AND TIME TO CURE

The most common area in which the tenant may breach the terms of the lease is by failing to make rental payment when due. This may occur for many reasons, intentionally or by accident. In any event, the tenant will want and should insist that the landlord notify him in writing of his default and give him an opportunity to cure it. The tenant must be careful to ascertain the date when the cure period begins to run, the date of sending of the notice, and the date of receipt.


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The tenant should INSIST on the following clause being included among the amendments to the lease:

DEFAULT - LANDLORD'S REMEDIES. Landlord may not place tenant in default without Landlord’s first having provided tenant with written notice of the reason for default and allowing tenant ten (10) days to cure the default.

When the tenant has defaulted and has failed for whatever reason to cure, the landlord is then at the point of exercising his remedies.

The customary remedies landlords have in the event of default are:

Re-entry of the leased premises Dispossession of the tenant from the leased premises Collection of the rentals remaining to be paid under the lease (either

presently, by acceleration, or as they become due) The taking possession of the tenant's personal property as collateral for

the rent due.

9.2 RE-ENTRY TO TAKE PROPERTY

The fourth option described above, even though often provided for by state laws, should be cause for strenuous objection by the tenant. The obvious reason and argument is that taking possession of his personal properly (his equipment) effectively prevents the tenant from continuing his business, without which he will have no income to pay for rents becoming due under the lease. Make sure that this clause is stricken or superseded by a clause in the amendment.

9.3 ACCELERATION CLAUSES

Another clause, which is sometimes found in leases, which could be very harmful to the tenant is what is known as an "Acceleration Clause." These clauses provide that should the tenant breach the lease agreement, i.e. fail to pay rent on time, all of the payments which would have to be paid during the remaining months of the lease would be accelerated. They would all become due immediately. In addition to nonpayment of rent, acceleration may be triggered automatically by the tenant’s bankruptcy, or by a claim being made against his property in another suit. This is clearly a harsh penalty.

While some courts have enforced these clauses, other courts have refused to. This is one area which may differ from state to state, and the courts may reach seemingly contradictory positions because of the different facts or circumstances of the case.


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A clause which severely softens any acceleration provision would be:

LIMITATIONS ON ACCELERATION . Any clause in the lease which calls for acceleration of lease payments in the event of a tenant default is: (1) Void if in violation of any state or federal law, (2) Void if the default or reason for acceleration is within the first year of the lease, and (3) If the event of default or reason for acceleration is after the first year, the acceleration of rent shall not exceed six (6) months rent, and the landlord shall not re-enter for ninety (90) days following written notice to tenant.

9.4 FAILURE TO RENEW

As you approach the end of your lease term, if you do not renegotiate the lease or notify your landlord of your intent to continue as his tenant you may open the door for problems.

Dr. Smith somehow lost his copy of his office lease. He thought it would expire on January 30, and he would renew it then. Meantime, he remodeled his office, adding wallpaper and new carpeting. After the remodeling, he contacted the building-owner about renewing his lease and learned why a doctor should keep careful track of an office lease's terms. His lease actually had expired on November 30, not January 30, and it required that he renew the lease 30 days before (on October 31). The landlord refused to renew and filed suit against Smith for staying on. After a trial court found for the landlord, Smith appealed. The doctor was in luck. The appeals court held that a tenant may be forgiven for missing a renewal deadline when the delay is not great and when the landlord would not be hurt by the renewal.

The courts might rule in a tenant's favor if he has made valuable improvements that would pass to the landlord if he were dispossessed. However, do not rely on the mercy of judges. Pay close attention to your lease's expiration date. Be especially alert if your lease is renewed automatically unless you give the landlord advance notice that you do not intend to remain.

In general, the landlord should not be able to have both possession and rent. If he terminates the lease and removes the tenant, he cannot sue for rent accruing after the date of termination. If he accelerates the rent and obtains a judgment, the tenant may acquire the right of possession for the balance of the term, thereby making it difficult to relet. These situations and use remedies require sophisticated analysis in the light of the laws and practices of each jurisdiction, and a lawyer should be consulted in the event a problem arises. All of these situations can be averted by communicating your intentions to your landlord.


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10. ARBITRATION

When disputes arise and cannot be resolved between the parties, they must often resort to the lawyers and the courts. Many leases provide for this, including the provision for fees to be paid to the attorneys. Resolution of disputes using this avenue can often be expensive and take a long time. An alternative that is quicker, less expensive, and in many cases, as effective, is the use of arbitration to resolve disputes. A typical process is described in the following clause, which you may want to use:

ARBITRATIONIn the event of differences between the landlord and tenant, or if any disputes, claims, breach or controversies should arise between the landlord and tenant, and upon demand for arbitration by either party, the following procedure shall be followed: 1. The landlord and the tenant shall each have three (3) days, after

written demand for arbitration has been made, to designate an arbitrator;

2. Within two (2) days thereafter, said arbitrators so designated shall select another arbitrator and these individuals shall constitute the Board of Arbitration;

3. Within five (5) days after said arbitrators have been so selected, the Board of Arbitration shall render its decision on the matter presented to it, and such decision shall be final, binding and conclusive.

4. Each party will pay for his own attorney and designated arbitrator, and share the expense of the third arbitrator or other expenses.

5. Should rules be required in the hearing, the rules of the American Arbitration Association will be used.

6. Notwithstanding the foregoing, either party may refuse to arbitrate when the dispute is for a sum of less than $ ________.

When the arbitration panel makes its decision, you may often turn to the courts to compel compliance with the panel's decision.

In the event that you are unable to negotiate an arbitration clause, your landlord is probably insisting on using the conventional attorneys fees clause (where the landlord's attorney fees are paid.) In this case negotiate the provision:

ATTORNEYS FEES. © DrFernandez.com 2008

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In the event either party must retain an attorney to resolve disputes between the parties, the losing party will pay the attorneys fees incurred by the prevailing party.

The clause will allow the tenant to have his attorneys fees paid if he’s right.

11. OPTIONS

11.1 OPTION TO PURCHASE

Often the tenant is leasing space which is capable of divisible ownership, i.e. a separate building, or a condominiumized office space. He may want to preserve his occupancy by purchasing the space, or by having an opportunity to do so should it become available to purchase.

When an option to purchase is exercised, it creates a contract for the sale of land. Although it may be embedded within a lease, an option to purchase "clause" should include all the provisions normally contained in a self-contained contract for purchase and sale of real estate. In this case, the advice and guidance from a skilled commercial real estate broker or attorney should be sought.

11.2 RIGHT OF FIRST REFUSAL TO PURCHASE

The usual first refusal option provides for notice from the landlord to the tenant of a bona fide offer made by a prospective purchaser, or a notice as to the fair market value of the property, the terms of sale, and a period within which the tenant may elect to purchase at the specified price and terms.

This option serves to bypass the problem of valuation of the property at a distant date inherent in the option to purchase. The landlord can set a price at its leisure and can time the offer of sale according to its convenience.

The tenant should seek a provision that would revive the first refusal option in the event that the seller's initial offer is unacceptable, and no third party has stepped in to make the purchase. Although the first refusal option affords less certainty to the tenant than the option to purchase does, the former is nonetheless worth pursuing for its tendency to chill the auction atmosphere that might otherwise exist. Again, as with any purchase, advice of a skilled commercial real estate broker or attorney would be advisable.

A clause which could be used in this amendment is:

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In the event Landlord wishes to sell the building, in which the leased premises are contained, Landlord will first offer to sell it to tenant with the same price and payment terms. Tenant will have twenty (20) days to accept or reject the offer.

Should Landlord subsequently receive an offer or counter offer in excess of ninety five percent of the original sale price offered tenant, with substantially similar terms, no notice need be given Tenant. However, should the sale price be less than ninety five percent of the sale price offered, Tenant then will have the right of first refusal as described in the next paragraph.

RIGHT OF FIRST REFUSAL.If Landlord receives a bona fide offer of less than ninety five percent of the offering price described above or an initial offer from a third party, for the purchase of the building in which Tenant has his office, which Landlord desires to accept, Landlord shall promptly deliver a copy of the offer to Tenant, and Tenant may, within ten days thereafter, elect to purchase the building on the same terms specified in the offer, or reject the offer.

Tenant will receive, as a credit against the purchase price, the amount of brokerage commission the Landlord would have saved by selling the building to the Tenant.

11.3 RIGHT OF FIRST REFUSAL ON ADJOINING SPACE

Should you anticipate expansion in the future, you may want to request the right to be offered adjoining space once it becomes vacant. Here you may modify the sample provision shown above to obtain this concession.

LET'S HEAR IT ! THERE'S NO HARM IN ... ASKING !!!

CONCLUSION

In this book, we've covered most situations and points of negotiation where you need protection as a new business owner.

A final thought in dealing with your landlord is to remember that the landlord owns your business home, and you both can have a substantial impact on your prosperity, or create impediments to your success. The landlord can make major repairs swiftly or slowly; allow improvements readily or reluctantly; keep access areas clean or messy. During the course of your negotiations keep in mind that you will live with the landlord for some time. You can help make the relationship a better one by taking care of your maintenance responsibilities, taking steps to improve the value of the property, cooperating with the landlord when requested, and above all, paying your rent on time.


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You can now finish the amendments with the following:

Signed this _________day of ______, 20____

___________________________ for Landlord___________________________

Tenant

Have copies made so that both the landlord and the tenant have copies with original signatures.

You should now be able to sign the lease with confidence. Once signed, you have completed a major step on your stairway to success.

EXHIBITS

EXHIBIT A - SAMPLE LEASE- LONG FORM WITHOUT AMENDMENTS

LEASE AGREEMENT

THIS LEASE made on the _____day of _____________,20 __ , by

___________________________________________________________ whose address is ______________________________________________________(herein called "Lessor"), and ___________________________________________________

whose address is ____________________________________________________ (herein called "Tenant").

WITNESSETH:

1. DEMISED PREMISES:

The Lessor hereby leases to the Tenant and the Tenant hereby leases from the Lessor, the © DrFernandez.com 2008

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following described property, sometimes hereinafter referred to as the Demised Premises, to wit:

Space designated as ____________________________________comprising approximately ______________ square feet, as shown on Exhibit "A" attached hereto and made a part hereof, being located at the following address: _________________________________________________________________, City of ____________________________ County of ________________, State of _________Florida______________________________

Including _________An allowance of $_______/sf___for_______________________

_________________partitioning and decorating_________________________________________________________________________________________________subject to and with the benefits of the terms, covenants, conditions, and provisions of this Lease, together with the appurtenances specifically granted in this Lease, but reserving and excepting to Lessor the right to install, maintain, use, repair and replace pipes, ducts, conduits and wires through the Demised Premises and serving the other parts of the building of which the Demised Premises are a part.

2. TERM:

2.1 The term of the Lease shall be for a period commencing no sooner than ________________________ nor later than ________________________ notwithstanding the provisions of Section 11.8 herein, and ending at Noon at the end of _________________ months, starting with the first full calendar month after the beginning date of the Lease Term, unless sooner terminated as hereinafter provided.

2.2 When the commencement and expiration dates of the Lease Term have been determined, Lessor and Tenant shall execute, acknowledge, and deliver a written statement specityinq the commencement and. expiration dates of the Lease Term. Such statement shall also state that Tenant is in possession of the Demised Premises and is paying the Fixed Minimum Rent and all other charges hereunder and that Tenant has no claims, defenses, setoffs, or counterclaims against Lessor (or if so, specifying the nature and amount thereof). Such statement, when so executed, acknowledged and delivered, will be deemed to be incorporated in and become a part of this Lease Agreement.

3. RENT:

3.1 FIXED MINIMUM RENT:

Tenant hereby covenants and agrees to pay, together with any and all sales and use taxes levied upon the use and occupancy of the Demised Premises during the term hereof, to the Lessor, in advance and beginning on the commencement date of this Lease, and on the first (1st) day of each and every month thereafter for the next twelve (12) month period.

A fixed monthly rent of: $15.50/sf $ _____________________


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Total monthly charges for services, if any (per section 3.5): $ _____________________

Total Monthly base rent: $ _____________________

Seven percent (7%) Sale and Use Tax: $ ____________________

TOTAL MONTHLY PAYMENT: $ ____________________

Rent shall be paid to Lessor at:

______________________________

______________________________

______________________________

The monthly base rent will be adjusted annually in the manner set forth in section 3.2 herein. If Tenant's possession commences on other than the first (1st) day of the month, Tenant shall occupy the Demised Premises under the terms, conditions, and provisions of this Lease Agreement, and the pro rata portion of the monthly rent for said month shall be paid and the term of this Lease shall commence on the first (1st) day of the month following that in which possession is given, unless otherwise provided herein.

3.2 ADJUSTMENT OF FIXED MINIMUM RENT:

The annual Fixed Minimum Rent shall be subject to periodical adjustments (but never below the amount specified in section 3.1 herein) on each anniversary of each Lease Year as hereinafter set forth. The term "Index" means the U.S.A. National Consumer Price Index, All Items, For All Urban Consumers (November, 1977, -100, published by the Bureau of Labor statistics, or other governmental agency then publishing the Index, or, if the Index is no longer published, the Index of Consumer Prices in National most closely comparable to the Index). The term "Base Number" means the bi-monthly Index number published immediately preceding the month in which falls the date of commencement of the Lease Term. The term "Current Number" means the bi-monthly Index number representing the annual anniversary of the Base Number immediately preceding the beginning of the Lease Year. If the latest Current Number applicable to a Lease Year exceeds the Base Number, then the Fixed Minimum Rent shall be increased to an amount which is the product obtained by multiplying the Fixed Minimum Rent set forth in section 3.1 herein by a fraction, the numerator of which is the Current Number applicable to that Lease Year, and the denominator of which is the Base Number.

3.3 TAX RENT:

For the purposes of this Section, the term "Taxes" shall include all Real Estate taxes, assessments (general and special) and other governmental impositions and charges of every kind


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and nature whatsoever, extraordinary as well as ordinary, foreseen and unforeseen, and each and every installment thereof, which shall or may during the Lease Term be levied, assessed, imposed, become due and payable, or lie upon, or arise in connection with, the use, occupancy, or possession of, become due or payable out of, or for, the building or the land improvements thereon. Tenant agrees to pay to Lessor Tenant's share of taxes, it any, as herein provided. Tenant's share of taxes for any calendar year shall be in an amount equal to the product obtained by multiplying the taxes by a fraction, the numerator of which is the square footage of the Demised Premises as set forth in Section 1 of this Lease Agreement, and the denominator of which is _____________ , which figure is the total net rentable square footage of the building shown on the Site Plan attached as Exhibit "C". Tenant agrees to pay its share of taxes, as additional rent (hereinafter called "Tax Rent"), in monthly payments in advance during the term of this Lease, as may be estimated by Lessor. At the end of each calendar year, Lessor shall advise Tenant of Tenant's share of taxes payable for such calendar year, as computed based upon the tax bill received by Lessor. If there shall have been an underpayment by Tenant, Tenant shall forthwith pay the difference and if there shall be an overpayment by Tenant, Tenant shall be given a credit toward the next due payment or payments of Tax Rent.

3.4 INTEREST:

Interest shall accrue at the then maximum lawful rate from and after the due date of any payment for Fixed Minimum Rent, Tax Rent, or any additional rent thereinafter described.

3.5 ADDITIONAL RENT FOR SERVICES WITHIN DEMISED PREMISES: (Included in total monthly base rent shown in section 3.1)

Additional annual rent plus applicable sales and use taxes to be paid by Tenant to Lessor for the services described below shall be as follows:

a) Normal electricity for office use: $ ____ per s.f. per yearb) Janitorial/Cleaning Services: $ ____ per s.f. per yearc) Maintenance and Repairs: $ ____ per s.f. per year

TOTAL ADDITIONAL RENT FOR SERVICES: $ ____ per s.f. per year

The adjustment of rent(s) for the above services shall be made in the same manner as set forth in section 3.2 herein. The above services, if applicable to this Lease, shall be described in the Addendum to this Lease Agreement.

3.6 ADDITIONAL RENTS

In addition to the Fixed Minimum Rent and Tax Rent, all other payments to be made hereunder by Tenant shall be deemed to be and shall become additional rent hereunder, whether or not the same be designated as such, and unless another time shall be herein expressly provided for the payment thereof, the same shall be due and payable on demand, or together with the next succeeding installment of Fixed Minimum Rent, whichever shall first occur, and Lessor shall have the remedies for failure to pay the same as for the nonpayment of Fixed Minimum Rent.


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3.7 RENT FOR A PARTIAL MONTH:

For any portion of a calendar month included at the beginning or end of the Lease Term, Tenant shall pay 1/30th of each monthly installment of Fixed Minimum Rent and additional rent for each day of such portion, payable in advance at the beginning of such portion.

3.8 SALES AND USE TAX:

The Tenant hereby covenants and agrees to pay monthly, as additional rent, any sales use, or other tax, excluding state and/or Federal Income Tax, now or hereafter imposed upon rents by the United States of America, the state, or any political subdivisions thereof, to the Lessor, notwithstanding the fact that such statute, ordinance, or enactment imposes the same endeavor to impose the tax on the Lessor.

3.9 PAYMENT:

Fixed Minimum Rent and all additional rent shall be payable in lawful money of the United States to Lessor at the address stated herein, or to such other persons, or at such other places as Lessor may designate in writing, without any setoff or deduction and without any prior demand therefor.

4. ALTERATIONS:

Tenant, by occupancy hereunder, accepts the Demised Premises as being in good repair and condition. Tenant shall maintain Demised Premises and every part thereof in good repair and condition, damages by causes beyond the Control of the Tenant, reasonable use, ordinary decay, and wear and tear excepted. Tenant shall not make or suffer to be made any alterations, additions, or improvement to or of the Demised Premises, or any part thereof, without prior written request to Lessor for consent, which consent the Lessor covenants and agrees shall not be unreasonably withheld. In the event Lessor consents to the proposed alterations, additions or improvements, the same shall be at the Tenant's sole cost and expense, and Tenant shall hold Lessor harmless on account of the cost thereof. Any such alterations shall be made at such times and in such manner as not to unreasonably interfere with the occupation, use, and enjoyment of the remainder of the building by the other Tenants thereof. If required by Lessor, such alterations shall be removed by Tenant upon the termination or sooner expiration of the term of this Lease, and Tenant shall repair damage to the premises caused by such removal, all at Tenant's cost and expense.

5. INSURANCE AND INDEMNITY:

5.1 LIABILITY INSURANCE:

Tenant shall, during the entire term hereof, keep in full force and effect, bodily injury and public liability insurance in an amount not less than FIVE HUNDRED THOUSAND DOLLARS ($500,000) per accident and injury, property damage insurance in an amount not less than FIFTY THOUSAND DOLLARS ($50,000), and Workers' Compensation insurance in the maximum amount permitted under Florida law. The policy shall name Lessor, any person, firms, or corporations designated by Lessor, and Tenant as insured, and shall contain a clause that the insurer will not cancel or change the insurance without first giving the Lessor ten (10) days prior written notice. The insurance shall


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be in an insurance company approved by Lessor, and copy of the policy or a certificate of insurance shall be delivered to Lessor prior to the commencement of the term of this Lease. In no event shall the limits of said insurance policies by considered as limiting the liability of Tenant under this Lease.

5.2 FIRE AND EXTENDED COVERAGE INSURANCE:

Tenant shall at all times during the term hereof, and at its cost and expense, maintain in effect policies of insurance covering its fixtures and equipment located on the Demised Premises, in an amount not less than eighty percent (80%) of their actual cash value, providing protection against any peril included within the standard classification of "Fire and Extended Coverage", together with the insurance against sprinkler damage, vandalism and malicious mischief. The proceeds of such insurance, so long as this Lease remains in effect, shall be used to repair or replace the fixtures and equipment so insured.

5. 3 INCREASE IN FIRE INSURANCE PREMIUM:

Tenant agrees that it will not keep, use, sell, or offer for sale, in or upon the Demised Premises, any article which may be prohibited by the standard form of fire and extended risk insurance policy. Tenant agrees to pay any increase in premiums for fire and extended coverage insurance that may be charged during the term of this Lease on the amount of such insurance which may be carried by Lessor on said Demised Premises or the building of which they are a part, resulting from the type of merchandise sold or used by Tenant in the Demised Premises or resulting from Tenant's use of the Demised Premises, whether or not Lessor has consented to the same. Tenant agrees to promptly make, at Tenant's cost, any repairs, alterations, changes and/or improvements to equipment in the Demised Premises required by the company issuing Lessor's fire insurance so as to avoid the cancellation of, or the increase in, premiums on said insurance.

If Tenant's use of the Demised Premises causes Lessor's insurance premium costs for the building to be increased, Tenant agrees to pay and is obligated for any cost of such increase, which shall be added to the next occurring monthly installment of rent, plus any applicable sales and use taxes.

5.4 INDEMNIFICATION OF LESSOR:

Tenant shall indemnity, defend, and save Lessor harmless from and against any and all claims, actions, damages, liability, and expense in connection with loss of life, personal injury and/or damage to property arising from or out of any occurrence in, upon, or at the Demised Premises, or the occupancy or use by Tenant of the Demised Premises or any part thereof, or occasioned wholly or in part by any act of omission of Tenant, its agents, contractors, employees, servants, lessees, or concessionaires. In case Lessor shall be made a party to any litigation commenced by or against Tenant, then Tenant shall protect and hold Lessor harmless and pay all costs and attorney's fees incurred by Lessor in connection with such litigation, and any appeals thereof. Tenant shall also pay all costs, expenses, and reasonable attorney's fees that may be incurred or paid by Lessor in enforcing the covenants and agreements in this Lease.

5.5 WAIVER OF SUBROGATION :


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Lessor and Tenant waive, unless said waiver should invalidate any such insurance, their right to recover damages against each other for any reason whatsoever to the extent the damaged part recovers indemnity from its insurance carrier. Any insurance policy procured by either Tenant or Lessor which does not name the other as a named insured shall, if obtainable, contain an express waiver of any right of subrogation by the insurance company, including but not limited to Tenant's workers' compensation carrier, against Lessor or Tenant, whichever the case may be. All public liability and property damage policies shall contain an endorsement that Lessor, although named as an insured, shall nevertheless be entitled to recover for damages caused by the negligence of Tenant.

6. USE:

The Demised Premises shall be used and occupied only for ____________________GENERAL OFFICE SPACE __ _______________and for no other purpose without the written consent of the Lessor.

7. UTILITIES :

Unless otherwise provided for, Tenant shall be solely responsible for and promptly pay all charges for water, gas, electricity, or any other utility used or consumed in the Demised Premises. If any such charges are not paid when due, Lessor may, at its option, pay the same, and any amount so paid by Lessor shall thereupon become due to Lessor from Tenant as additional. Should Lessor elect to supply the water, gas, electricity, or any other utility used or consumed in the Demised Premises, Tenant agrees to purchase and pay for the same as additional rent at the applicable rates shown in the Addendum attached to this lease Agreement. In no event shall the Lessor be liable for an interruption or failure in the supply of any such utilities to the Demised Premises.

8. ADDITIONAL COVENANTS:

8.1 REPAIRS BY LESSOR:

Lessor covenants to keep, or cause to be kept, in good order, repair and condition (if the Demised Premises shall be less than the entire building), the foundations, roof and downspouts of the Demised Premises, the structural soundness of the floor and walls thereof installed as a part of the Lessor's work, and the pipes, ducts, conduits, and wires running through the Demised Premises and installed therein by Lessor (but not including Tenant's service connections thereto), except as affected by work performed by Tenant, or the negligence, act, or omission of Tenant, its employees, agents and invitees. The provisions of this Section shall not apply in the case of damage by fire or casualty or by eminent domain, in which events the obligations of the Lessor shall be controlled by the applicable provisions of this Lease. Except as provided in this Section, Lessor shall not be obligated to make repairs, replacements, or improvements of any kind upon the Demised Premises or upon any equipment or facilities or fixtures contained therein, all of which shall be the responsibility of the Tenant.

8.2 QUIET ENJOYMENT:

Lessor covenants that Tenant, on paying the Fixed Minimum Rent and additional rent and performing Tenant's obligations in this Lease peacefully and quietly have, hold and enjoy the


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Demised Premises throughout the Lease Term without hindrance, ejection or molestation by any person lawfully claiming by, through, or under Lessor, subject to the other terms and provisions of this Lease, and to all mortgages and underlying leases of record to which this Lease may be or become subject and subordinate. 8.3 LESSOR'S LIABILITY:

In the event of a sale of Lessor of its interest in the building, then, and in that event, Lessor shall thereupon be entirely relieved of all terms, covenants, and obligations thereafter to be performed by Lessor under this Lease, and it shall be deemed and construed, without further agreement, that the transferee has assumed and agreed to carry out any and all covenants and obligations of Lessor hereunder.

8.4 PARKING:

Lessor shall provide a reasonable amount of free parking for Tenant’s employees and visitors on Lessor's parking area adjacent to the building in which the Demised Premises are located.

9. TENANT'S ADDITIONAL COVENANTS:

9.1 AFFIRMATIVE COVENANTS:

Tenant covenants, at its own expense, at all times during the Lease Term:

9.1.1 To perform promptly all the obligations of Tenant set forth in this Lease and in the exhibits attached hereto and to pay, when due, the Fixed Minimum Rent, Tax Rent and all other charges and additional rents which by the terms of this Lease are to be paid by Tenant.

9.1.2 To use the Demised Premises only for the Permitted Use and to abide by and conform to any and all Use restrictions detailed, prescribed, and/or set forth in the certificate of occupancy issued for the Demised Premises, all applicable occupation permits and all other laws, orders, rules, and regulations of any governmental authority claiming jurisdiction over the Demised Premises.

9.1.3 Except for repairs required to be performed by Lessor pursuant to the provisions of this Lease, to keep the Demised Premises, including equipment, facilities and fixtures therein, at Tenant's sole cost and expense, clean, neat and in good order, repair, and condition and free of vermin, and at Tenant's sole cost and expense, to keep all glass, including that in windows, doors and skylights, clean and in good condition, and to replace any glass which maybe damaged or broken with glass of the same quality.

The replacement of any plate glass damaged or broken in and about the Demised Premises shall be the Tenant's responsibility, excluding causes attributable to Lessor or Lessor's agents, as well as causes due to structural defects, faulty design, or the settling of the building's foundation, which shall be the responsibility of the Lessor.


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9.1.4 To make all repairs, alterations, additions, or replacements to the Demised Premises, including equipment, facilities and fixtures therein, required because of Tenant's use or occupancy of the Demised Premises, by any law or ordinance or any order or regulation of any governmental authority or board of fire underwriters having jurisdiction or of any insurance company providing coverage in any part of the building; to keep the Demised Premises equipped with all safety appliances so required because of such use, and otherwise to comply with orders, regulations and recommendations of all such governmental authorities, board of fire underwriters and insurance companies. Tenant shall pay any fines, assessments, costs and expenses resulting from its undertakings as set forth herein. 9.1.5 To pay promptly, when due, the entire costs of any work to the Demised Premises, including equipment, facilities and fixtures therein, undertaken by Tenant when permitted or required to do so under the provisions of this Lease, so that the Demised Premises shall at all times be free of liens for labor and materials; to procure all necessary permits before undertaking such work, to do all such work in a good and workmanlike manner acceptable to Lessor, employing materials of good quality; to perform such work in such manner as to ensure proper maintenance of good and harmonious labor relationships; to comply with all governmental requirements relating thereto, and to save Lessor harmless and indemnified from all injury, loss, claims, or damage to any person or property occasioned by or growing out of such work.

9.1.6 To defend and save Lessor harmless and indemnified from all injury, loss, claims, or damage (including attorney's fees and disbursements) to any person or property arising from, related to, or in connection with, the use or occupancy of the Demised Premises or conduct or operation of Tenant’s business, or in connection with Tenant's work at the Demised Premises.

9.1.7 To waive all claims for loss or damage to Tenant 's business or damage to personal property sustained by Tenant or any person claiming through Tenant, resulting from any accident or occurrence in or upon the Demised Premises or the building, unless caused by or resulting from the negligence of Lessor, its agents, servants or employees.

9.1.8 To permit Lessor or Lessor's agents to enter upon the Demised Premises at all reasonable times to examine same and to make such repairs, alterations, improvements or additions in the Demised Premises or in the Building as may be necessary, and to allow Lessor to take all materials into and upon said premises that may be required therefor without the same constituting an eviction of Tenant, in whole or in part, and all rents shall in no wise abate while such repairs, alterations, improvements, or additions are being made by reason of loss or interruption of business of Tenant because of any such work. Lessor or Lessor's agents shall also have the right to enter upon the Demised Premises at reasonable times to show them to prospective mortgagees or purchasers of said building. During the 120 days prior to the expiration of the term of this Lease, Lessor may show the Demised Premises to prospective tenants and Lessor may also place upon the Demised Premises the usual notices "To Let" or "For Rent", which notices Tenant shall permit to remain thereon without molestation. If, during the last month of the Term, Tenant shall have removed all or substantially all of Tenant's property therefrom, Lessor may immediately enter and alter, renovate and redecorate the Demised Premises without elimination or abatement of rent or additional rent or other compensation, and such shall have no effect upon this Lease.

9.1.9 To pay on demand Lessor's expenses, including reasonable attorney's, architect's and engineer's fees, incurred in enforcing any obligation of Tenant under this Lease or incurring any


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default by Tenant under this Lease.

9.1.10 Upon the expiration or other termination of the Lease Term, to quit and surrender to Lessor the Demised Premises, broom clean, in good order and condition, ordinary wear and tear excepted, and at Tenant's expense, to remove all property of Tenant, to repair all damages to the Demised Premises caused by such removal and restore the Demised Premises to the condition in which they were prior to the installation of the articles so removed. Any property not so removed shall be deemed to have been abandoned by Tenant and may be retained or disposed of by Lessor as Lessor shall desire, and if Lessor shall decide to dispose of the same, such disposal shall be at the cost and expense of Tenant.

9.1.11 To remain fully obligated under this Lease, notwithstanding any assignment or sublease or any indulgence granted by Lessor to Tenant or to any assignee or sublessee.

9.2 NEGATIVE COVENANTS.

Tenant covenants at all times during the Lease Term and such further time as Tenant occupies the Demised Premises, or any part thereof:

9.2.1 Not to injure overload, deface or otherwise harm the Demised Premises or any part thereof or any equipment or installation therein, nor commit any waste or nuisance; nor permit the emission of any objectionable noise or odors nor burn any trash or refuse in or about the Demised Premises; nor make any use of the Demised Premises, or any part thereof or equipment therein, which is improper, offensive or contrary to any law or ordinance, or to reasonable rules or regulations of Lessor, as such may be promulgated from time to time; nor park trucks and delivery vehicles so as to interfere with the use of driveways, walks, roadways, highways, streets, or parking areas.

9.2.2 Not to place or install or maintain any sign upon the exterior at the building or land shown in the site Plan without the prior written consent of the Lessor.

10. DESTRUCTION AND CONDEMNATION.

10.1 FIRE OR OTHER CASUALTY:

10.1.1 Tenant shall give prompt notice to Lessor in case of fire or other damage to the Demised Premises or the building in which the Demised Premises are located.

10.1.2 If (i) either the Demised Premises or the building in which the Demised Premises are located shall be damaged to the extent of more than 25% of the cost of replacement thereof, respectively, or (ii) the proceeds of the Lessor's insurance recovered or recoverable as a result of the damage shall be insufficient to pay fully for the cost of replacement of the Demised Premises and/or the building in which they are located or (iii) the Demised Premises or the building in which they are located shall be damaged as a result at a risk which is not covered by Lessor's insurance or (iv) the Demised Premises shall be damaged in whole or in part during the last two years of the Lease Term or (v) the building in which the Demised Premises are located shall be damaged to the extent of 50% or more of the cost at the replacement thereof, whether or not the Demised Premises shall be damaged, then, and in any such events, Lessor may terminate this lease by


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notice given within ninety (90) days after such event and upon the date specified in such notice, which shall not be less than thirty (30) days nor more than sixty (60) days after the giving of said notice, this Lease shall terminate and come to an end, and Tenant shall vacate and surrender the Demised Premises to Lessor. If the casualty, repairing or rebuilding shall render the Demised Premises untenantable in whole or in part, an equitable abatement of the Fixed Minimum Rent shall be allowed from the date when the damage occurred until completion of the repairs or rebuilding or, in the event Lessor elects to terminate this Lease, until said date of termination, taking into account, among other things, the amount and location of the floor space of the Demised Premises rendered untenantable.

10.1.3 If this lease shall not be terminated as provided above, Lessor shall, at its expense, proceed with the repair or restoration of the Demised Premises and the building in which the Demised Premises are located.

10.1.4 The "cost of replacement" as such term is used in paragraph 10.1.2 above shall be determined by the company or companies selected by Lessor or insuring Lessor against the casualty in question, or if there shall be no insurance, then as the parties hereto shall agree, or in the absence of an insurance company determination or an agreement, as shall be determined by arbitration in the city of Palm Harbor in accordance with the provisions of Section 682 Florida Statutes.

10.1.5 If the Demised Premises and/or the building in which the Demised Premises are located shall be damaged or destroyed due to the fault and/or negligence of Tenant, its agents, employees or invitees, Tenant shall, at its expense, repair or restore the Demised Premises or building in which the Demised Premises are located, and the Fixed Minimum Rent, Tax Rent and all other additional rents and charges herein shall not abate.

10.2 EMINENT DOMAIN:

10.2.1 If the whole of the Demised Premises shall be taken by any public or quasi-public authority under the power of condemnation, eminent domain or expropriation, or in the event of a conveyance in lieu thereof, the Lease Term shall cease as of the date possession shall be taken by such authority.

10.2.2 If 25% or less of the Floor Space of the Demised Premises shall be so taken or conveyed, the Lease Term shall cease only with respect to the part so taken or conveyed, as of the date possession shall be taken by such authority.

10.2.3 If more than 25% of the Floor Space of the Demised Premises shall be so taken or conveyed, the Lease Term shall cease only with respect to the part so taken or conveyed, as the date possession shall be taken by such authority, and either party shall have the right to terminate this Lease upon notice in writing within thirty (30) days after such taking of possession.

10.2.4 In the event of any such taking or conveyance of the Demised Premises, or any portion thereof, Tenant shall pay Fixed Minimum Rent and any additional rent applicable to this Lease to the day when possession thereof shall be taken by such authority, with an appropriate refund by


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Lessor of such rent as may have been paid in advance for a period subsequent to such date. If this Lease shall continue in effect as to any portion of the Demised Premises not so taken or conveyed, the Fixed Minimum Rent shall be equitably reduced and the Tax Rent and other charges shall thereafter be recomputed on the basis of the remaining Floor Space. If this Lease shall so continue, Lessor shall, at its expense, but only to the extent of an equitable proportion of the award or other compensation for the portion taken or conveyed of the building in which the Demised Premises are located, make all necessary repairs or alterations so as to constitute the remaining Demised Premises a complete architectural and tenantable unit.

10.2.5 If part of the parking facilities or land surrounding the building in which the Demised Premises are a part shall be so taken or conveyed that a reasonable number of parking spaces necessary, in Lessor’s judgment, for the continued operation of the building shall not be available for use, then and in such event, Lessor may, by notice in writing to Tenant delivered on or before the day of surrendering possession to the authority, terminate this Lease, and Fixed Minimum Rent and additional rent shall be paid or refunded as of the date of termination.

10.2.6 All compensation awarded for any such taking or conveyance, whether for the whole or a part of the Demised Premises or otherwise, shall be the property of Lessor, and Tenant hereby assigns to the Lessor all of Tenant’s right, title, and interest in and to any and all such compensation.

11. DEFAULTS AND REMEDIES:

11.1 DEFAULTS:

11.1.1 If Tenant defaults in fulfilling any of the covenants of this Lease, including without limiting the generality of the foregoing, the covenants for the payment of Fixed Minimum Rent or additional rent when due, or any part thereof, or for the making of any other payment herein provided for, or for the performance of any other covenant on Tenant’s part to be performed hereunder, and such default shall continue for five (5) days after service by Lessor of written notice upon Tenant specifying the nature of said default, (or if the said default so specified shall be of such a nature that the same cannot be reasonably cured or remedied within said five (5) day period, if Tenant shall not in good faith commence the curing or remedying of such default within such five (5) day period and shall not thereafter diligently proceed therewith to completion), then, in any one or more of such events, Lessor may serve upon Tenant a written notice that this Lease and the Lease Term will terminate on a date to be specified therein which shall not be less than three (3) days after the giving of such notice and upon the date so specified, this Lease and Lease Term shall terminate and come to an end as fully and completely as if such date were the day herein definitely fixed for the end and expiration of this Lease and the Lease Term, and Tenant shall then quit and surrender the Demised Premises to Lessor, but Tenant shall remain liable as hereinafter set forth. 11.1.2 If the notice provided for in the above paragraph shall have been given and this Lease shall be terminated, then, and in such event, Lessor may without notice terminate all services, re-enter the Demised Premises either by force or otherwise, and by summary proceedings or


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otherwise, dispossess Tenant or the legal representative of Tenant or other occupants of the Demised Premises and remove their effects and hold the Demised Premises as if this Lease had not been made.

11.2 BANKRUPTCY :

It there shall be filed against Tenant in any court, pursuant to any statute either of the United States or of any state, a petition on bankruptcy or insolvency or reorganization or the appointment of a receiver or trustee of all or a portion of Tenant's property, or it Tenant shall voluntarily file any such petition, then and in that event, the Lease shall be deemed cancelled and terminated, subject to the right of the trustee, with the court's approval, to timely assume the unexpired Lease, provided, however, such trustee faithfully complies with the provisions of Subjection (b), (c) and (d) of Section 365 of the Bankruptcy Reform Act of 1978. It Tenant shall make an assignment for the benefit of creditors or enter into an arrangement, this Lease shall be deemed cancelled and terminated, in which event neither Tenant nor any person claiming through or under Tenant shall be entitled to acquire or remain in possession of the Demised Premises, and Lessor shall have no further liability hereunder to Tenant, and any such person, if in possession, shall forthwith quit and surrender the Demised Premises. If this Lease shall be so cancelled and terminated, Lessor, in addition to the other rights or remedies of Lessor by virtue of any other provision herein or elsewhere in this Lease contained, or by virtue of any statute or rule of law, may retain as liquidated damaqes the Security Deposit or any monies received by Lessor from Tenant or others on behalf of Tenant. In addition, Lessor shall be entitled to recover from Tenant, as and for liquidated damages and amount equal to the difference between (i) the sum of (a) the annual Fixed Minimum Rent, (b) the Tax Rent payable in the calendar year immediately preceding such termination, and (c) all other additional rents, all multiplied by the number of years and fraction of a year then constituting the unexpired portion of the Lease Term and (ii) the rental value of the Demised Premises at the time of termination for such unexpired term or portion thereof. If the Demised Premises, or any part thereof, be relet by Lessor for the unexpired term of said Lease, or any part thereof, before presentation of proof of such liquidated damages to any court, the amount of rent reserved upon such reletting shall be deemed prima facie to be fair and reasonable rental value for the part or the whole of the Demised Premises so relet during the term of the reletting.

11.3 REMEDIES OF LESSORS

11.3.1 In case of any such default, re-entry, expiration, and/or dispossession by summary proceedings or otherwise, (i) the Fixed Minimum Rent and additional rent shall become due thereupon and be paid up to the time of such re-entry, dispossession, and/or expiration, (ii) Lessor may relet the Demised Premises, or any part or parts thereof for a term which may, at Lessor's option, be less than or exceed the period which would otherwise constitute the balance of the term of this Lease, and may grant concessions or agree rent and (iii) Tenant or the legal representative of Tenant shall also pay Lessor as liquidated damages for the failure of Tenant to observe and perform Tenant’s covenants herein contained, any deficiency between (a) the sum of one (1) monthly installment of the Fixed Minimum Rent, (2) Tax Rent that would have been payable for the month in question but for re-entry or termination, (3) other monthly charges for additional rent for each month of the period which would otherwise have constituted the balance of the Lease Term and (b) the net amount, if any, of the rents collected on account of the Lease or Leases of


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the Demised Premises for each month of the period which would otherwise have constituted the balance of the Lease Term. The refusal or failure of Lessor to relet the Demised Premises or any part thereof shall not release or affect Tenant's liability for damages. In computing such liquidated damages, there shall be added to the said deficiency such expenses as Lessor may incur in connection with the reletting, such as court costs, attorneys' fees, and disbursements, brokerage fees, and expenses for putting and keeping the Demised Premises in good order or for preparing same for reletting, together with interest on the expenses so incurred at then maximum lawful rate from the date of such expenditure to date of repayment thereof to Lessor. Any such liquidated damages shall be paid in monthly installments by Tenant on the rent date specified in this Lease, and any suit brought to collect the amount of deficiency for any month shall not prejudice in any way the rights of Lessor to collect the deficiency for any subsequent month by a similar proceeding. Lessor, at Lessor’s option, may make such alterations, repairs, replacements and/or decorations of the Demised Premises as Lessor, in its sole judgment, considers advisable and necessary for the purpose of reletting the Demised Premises, and the making of such alterations, repairs, replacements, and/or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid.

11.3.2 In any of the circumstances mentioned in the foregoing paragraph in which Lessor shall have the right to hold Tenant liable upon the several rent days as therein provided, Lessor shall have the election, in place and instead of holding Tenant so liable, forthwith to recover against Tenant, as damage for loss of the bargain and not as a penalty, the liquidated damages provided for in paragraph 11. 3 .1 herein.

11.3.3 In the event of a breach or threatened breach by Tenant of any of the covenants or provisions hereof, Lessor shall have the right of injunction and the right to invoke any remedy allowed at law or in equity, as if the re-entry, summary proceedings and other remedies were not herein provided for. Mention in this Lease of any particular remedy shall not preclude Lessor from any other remedy at law or in equity.

11.3.4 Tenant hereby expressly waives the service of notice of intention to re-enter or to institute legal proceedings to that end and any and all rights of redemption granted by or under present or future laws in the event of Tenant being evicted or dispossessed for any cause or in the event of Lessor obtaining possession of the Demised Premises by reason of the violation by Tenant of any of the covenants and conditions of this Lease or otherwise.

11.4 HOLDOVER BY TENANT:

In the event Tenant remains in possession of the Demised Premises after the expiration of the tenancy created hereunder, and without the execution of new Lease, Tenant, at the option of Lessor, shall be deemed to be occupying said Demised Premises as a Tenant from month to month, at a monthly rental equal to twice the sum of (i) the monthly installment of Fixed Minimum Rent payable during the last month of the Lease Term, (ii) the Tax Rent payable for the last month of the Lease Term, (iii) the monthly charge for other additional rent, it any and (iv) all other charges payable hereunder, subject to all of the other conditions, provisions and obligations of this Lease insofar as the same are applicable to a month-to-month tenancy. Tenant shall not interpose any counterclaim or counterclaims in a summary proceeding or the other action baaed on holdover.


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11.5 LESSOR’S RIGHT TO CURE DEFAULTS:

Lessor may, but shall not be obligated to, cure, at any time without notice, any default by Tenant under this Lease and whenever Lessor so elects, all costs and expenses incurred by Lessor incurring such default, including, without limitations, reasonable attorney's fees, together with interest on the amount of costs and expenses so incurred at the then maximum lawful rate, shall be paid by Tenant to Lessor on demand and shall be recoverable as additional rent.

11.6 EFFECT OF WAIVERS OR DEFAULT:

No consent or waiver, expressed or implied, by Lessor to or of any breach of any covenant, condition, or duty of Tenant shall be construed as a consent or waiver to or of any other breach of the same or any other covenant, condition or duty, unless in writing signed by the Lessor.

11.7 ESTOPPEL CERTIFICATES:

Tenant agrees that it will, at any time, within ten (10) days following written notice by Lessor, execute, acknowledge and deliver to Lessor a statement in writing certifying that this Lease is unmodified and in full force and effect, (or if there have been any modifications, that the same is in full force and effect as modified, stating the modifications), and the dates to which Fixed Minimum Rent and other payments due hereunder from Tenant have been paid in advance, if any, and stating whether or not to the best knowledge of the Tenant the Lessor is in default in the performance of any covenant, agreement or condition contained in this Lease, and if so, specifying each such default. The failure of Tenant to execute, acknowledge and deliver to Lessor a statement in accordance with the provisions of this Section shall constitute an acknowledgment by Tenant, which may be relied upon by any person holding or proposing to acquire an interest in the building or the Demised Premises or this Lease from or through Lessor, that this Lease is unmodified and in full force and effect and that the Fixed Minimum Rent and other charges have been paid to and including the respective due dates immediately preceding the date of such notice, and shall constitute, as to any person entitled as aforesaid to rely upon such statement a waiver of any defaults which may exist prior to the date of such notice. In addition, the Tenant shall be deemed to have irrevocably constituted and appointed the Lessor as its attorney in fact and in its name, place and stead to execute, acknowledge and deliver such statement.

11.8 EFFECT OF UNAVOIDABLE DELAYS:

The provisions of this Section shall be applicable if there shall occur, during the Lease Term or prior to the commencement thereof, any (i) strike, lockout or labor dispute, (ii) inability to obtain labor or materials or reasonable substitutes thereof, or (iii) acts of God, governmental restrictions, regulations or controls, enemy or hostile governmental action, civil commotion, fire or other casualty, or other conditions similar or dissimilar to those enumerated in this Item (iv) beyond the reasonable control of the party obligated to perform. If Lessor or Tenant shall, as a result of any


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of the above described events, fail punctually to perform any obligation on its part to be performed under this Lease, then such failure shall be excused and not be a breach of this Lease by the party in question, but only to the extent occasioned by such event. If any right or option of any party to take any action under or with respect to this Lease is conditioned upon the same being exercised within any prescribed period of time or at or before a named date, then such prescribed period of time and such named date shall be deemed to be extended or delayed, as the case may be, for a period equal to the period of the delay occasioned by any above described event. Notwithstanding anything herein contained, however, the provisions of this Section shall not be applicable to Tenant's obligation to pay the Fixed Minimum Rent or additional rent under the provisions of Section 3, or its obligation to pay any other sums, monies, costs, charges, or expenses required to be paid by Tenant hereunder.

11. 9 NO WAIVER:

The failure of the Lessor to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease or any of the Rules and Regulations now or hereafter adopted or promulgated by Lessor, shall not prevent a subsequent act which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Lessor of Fixed Minimum Rent or additional rent or any other charges payable under this Lease, with knowledge of the breach of any covenant of this Lease by Tenant, shall not be deemed a waiver of such breach. No provision of this Lease shall be deemed to have been waived by Lessor unless such waiver be in writing and signed by Lessor. No payment by Tenant or receipt by Lessor of a lesser amount than the monthly payments required to be made hereunder shall be deemed to be other than on account of the earliest stipulated Fixed Minimum Rent or additional rent or other charges payable hereunder, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, and Lessor may accept such check or payment without prejudice to Lessor's right to recover the balance of such rent or pursue any other remedy in this Lease provided.

12. ASSIGNMENT AND SUBLETTING:

12.1 CONSENT REQUIRED:

Tenant may not assign this Lease in whole or in part, nor sublet all or any portion of the Demised Premises without prior written consent of Lessor in each instance, which consent the Lessor covenants and agrees shall not be unreasonably withheld. The consent by Lessor to any assignment or subletting shall not constitute a waiver of the necessity for such consent to any subsequent assignment or subletting. If this Lease be assigned, or if the Demised Premises or any part thereof be under-let or occupied by any party other than Tenant, Lessor may collect rent from the assigned sub-tenant, or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, subletting, occupancy, or collection shall be deemed a waiver of this covenant or the acceptance of the assignee, sub-tenant, or occupant as Tenant or a release of Tenant from the further performance by Tenant of the covenants on the part of Tenant herein contained. This prohibition against assignment or subletting shall be construed to include


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prohibition against any assignment or subleasing by operation of law, legal process, receivership, bankruptcy or otherwise, whether voluntary or involuntary, and a prohibition against any encumbrance of all and any part of Tenant's leasehold interest. Notwithstanding any assignment or subleasing, Tenant shall remain fully liable on this Lease and shall not be released from performing any of the terms, covenants, and conditions hereof.

12.2 SIGNIFICANT CHANGE OR OWNERSHIP:

If the Tenant is a corporation (other than one whose shares are regularly and publicly traded on a recognized stock exchange), Tenant represents the ownership and power to vote its entire outstanding capital stock belongs to and is vested in, the officer or officers executing this Lease or members of his or their immediate family. If there shall occur any change in the ownership of and/or power to vote the majority of the outstanding capital stock of Tenant, whether such change of ownership is by sale, assignment, bequest, inheritance, operation of law, or otherwise, without the prior written consent of Lessor, Lessor shall have the option to terminate this Lease upon thirty (30) days notice to Tenant.

13. MISCELLANEOUS PROVISIONS:

13.1 NOTICES:

Any notice or demand from Lessor to Tenant or from Tenant to Lessor shall be in writing and shall be deemed duly delivered if mailed by registered or certified mail, return receipt requested, addressed, if to Tenant at the address of Tenant set forth herein or such other address as Tenant shall have last designated by notice in writing to the Lessor, and if to Lessor, at the address of Lessor set forth herein or such other address as Lessor shall have last designated by written notice to Tenant. Notices shall be deemed delivered when mailed.

13.2 BROKERAGE :

Tenant warrants that is has had no dealings with any broker or agent in connection with this Lease and Tenant covenants to pay, hold harmless, and indemnify Lessor from and against any and all costs, expense, or liability for any compensation, commissions and charges claimed by any broker or agent on the basis of having represented with respect to this Lease or the negotiation thereof.

13.3 APPLICABLE LAW AND CONSTRUCTION:

The laws of the state of Florida shall govern the validity, performance and enforcement of the Lease. The invalidity or unenforceability of any provision of the Lease shall not effect or impair any other provision. All negotiations, considerations, representations, and understandings between the parties are incorporated in this Lease. The headings of the several Articles and Sections contained herein are for convenience only and do not define, limit or construe the contents of such Articles or Sections.


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13.4 BINDING EFFECT OF LEASE:

The covenants, agreements and obligations herein contained, except as herein otherwise specifically provided, shall extend to, bind, and inure to, the benefit of the parties hereto and their respective personal representatives, successors and permitted assigns. Each covenant, agreement, obligation or other provision herein contained shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking, or making the same, not dependent on any other provision of this Lease unless otherwise expressly provided. If any term, covenant, agreement or provision of this Lease shall be held by any court of competent jurisdiction to be against public policy and/or null and void, such term, covenant, agreement, or provision shall be deemed not to have been included in this Lease and shall not affect the validity of the remaining terms, covenants, agreements, or provisions of this Lease.

13.5 SUBORDINATIONS

13.5.1 This Lease is subject and subordinate to all mortgages which may now or hereafter affect the building in which the Demised Premises are located, or the land underlying such building, as shown in site plan and to all renewals, modifications, amendments, consolidations, replacements and extensions thereof. This clause shall be self-operative, and no further instrument of subordination shall be required by any mortgagee. In confirmation of such subordination, Tenant shall execute promptly any certificate that Lessor may request. Tenant hereby constitutes and appoints Lessor as Tenant's attorney in fact to execute any such certificate or certificates for and on behalf of Tenant.

13.5.2 At the option of the Lessor or any successor Lessor or holder of any mortgage affecting the Demised Premises, Tenant agrees that the foreclosure on a mortgage affecting the Demised Premises or the institution of any suit, action, summary or other proceeding against the Lessor herein or any successor Lessor, or any foreclosure proceeding brought by the holder of any such mortgage to recover possession of such property, shall by operation of law or otherwise, result in a cancellation or termination of this Lease or the applications of Tenant hereunder, and upon the request of any such Lessor, successor Lessor or holder of such mortgage, Tenant covenants and agrees to execute an instrument in writing satisfactory to such Lessor, successor Lessor or to the holder of such mortgage or to the purchaser of the mortgaged premises in foreclosures, whereby Tenant attorns to successor in interest.

13.6 NO ORAL CHANGES:

This Lease may not be changed or terminated orally but only upon an agreement in writing signed by the parties hereto.


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13.7 NO REPRESENTATIONS BY LESSOR:

Lessor or Lessor's Agents have made no representations, warranties, or promises with respect to the Demised Premises or the building in which the Demised Premises are located except as herein expressly set forth.

14. SECURITY DEPOSIT:

The Tenant concurrently with the execution of this Lease, has deposited with the Lessor the sum of _________________________________________________, the receipt beinq hereby acknowledqed, which sum shall be retained by the Lessor as security for the payment by the Tenant of the rent herein agreed to be paid and for the faithful performance of the covenants of this Lease. If, at any time, the Tenant shall be in default in any of the provisions of this Lease, the Lessor shall have the right of use of said deposit, or so much thereof as may be necessary in payment of any expense incurred by the Lessor in and about the curing of any default by said Tenant, and/or in payment of any damages incurred by the Lessor by reason of such default of the Tenant, or at the Lessor’s option, the same may be retained by the Lessor in liquidation of part of the damages suffered by the Lessor by reason of default of the Tenant. In the event that said deposit shall not be utilized for any such purpose, then such deposit shall be applied to the rent last due for the term of this Lease or any renewal term thereof. Said deposit shall not bear interest.

In the event any mortgagee or other third party becomes the owner of the Premises and does not receive the Security Deposit from the predecessor Landlord, then Tenant agrees to look only to the predecessor Landlord for the refund of the Security Deposit.

ANY ATTACHMENTS TO THIS LEASE AGREEMENT, IF INITIALED BY BOTH PARTIES TO THIS LEASE, SHALL BE AN INTEGRAL PART HEREOF.

IN WITNESS WHEREOF, TENANT and LESSOR have caused this instrument to be executed as of the date first above written, by their respective officers or parties thereunto duly authorized.

__________________________ Tenant

__________________________ __________________________By

__________________________ __________________________Witnesses to Tenant Title

__________________________Attest (Secretary)


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CORPORATE SEAL

__________________________

__________________________Lessor

__________________________ __________________________ (President)

__________________________ __________________________Witnesses to Lessor Attest (Assistant Secretary)

CORPORATE SEAL

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EXHIBIT B • SAMPLE AMENDMENT FORMAT

AMENDMENT

THIS IS AN AMENDMENT to a lease between __________________________, land lord, and, ______________________________________tenant

1. Increase in Rental Rate:

The yearly increase in the rental rate shall be on the anniversary date of this Lease and shall be as follows : 2nd year: __________________________

2. Option to Renew:

Provided that all installments of rent due under this Lease Agreement have been theretofore paid in full, and provided that all other conditions and terms of this Lease have been properly and fully complied with by the Tenant, the Tenant shall have one (1) opt ion to renew this Lease for an additional term of two (2) years at the same terms and conditions.

Tenant shall exercise such renewal option granted hereby, by giving written notice thereof to Landlord by registered or certified mail, Return Receipt Requested, at the address of the Lessor set forth hereinabove (or at such other address as may from time to time be designated by Landlord), at least ninety (90) days prior to the expiration of the terms hereof.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Lease Agreement on the date set forth above.

___________________________ Tenant

__________________________ By: _________________________Witness to Tenant

Title:________________________

Date: _______________________

__________________________ __________________________Witness to Landlord Landlord

Title:________________________

Date: _______________________


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EXHIBIT C • SAMPLE AMENDMENT

AMENDMENT TO LEASE

This is an amendment to a lease between: _________________ Lessor, and ________________ , Lessee dated November _______ , 2002.

Landlord and tenant agree that should any provision in this amendment disagree or conflict with any provision in the lease, the provision in this amendment will control.

RELEASE FROM LIENS Landlord hereby releases any lien, assignment, or claim which he may have or acquire on personal property located on the premises.

OPTION TO EXTEND Tenant, or its assignee, is hereby granted and shall have an option to renew or extend the term of this lease for an additional period of five years from the termination date of this lease, on the same terms, conditions, and amendments of this lease. The rental rate shall increase annually at the same rate specified in the lease.

SHARING OF SPACE Tenant may, at its discretion, engage, share space, sublet or associate with an additional business or person. No provision of this lease will prohibit the use of the leased space for this purpose.

RIGHT TO SUBLEASE Tenant has the right to sublease the space with Landlord's consent, but consent will not be unreasonably withheld.

RIGHT TO CHANGE NAME Tenant, or any co-signor on this lease reserves the right to change the name of its business, or its business activity without consent of the landlord.

RIGHT TO ASSIGN Should tenant sell its business, tenant reserves the right to assign this lease and its amendment to the purchaser for the remainder of the term without landlord's consent.

PREPAID FUNDS Prior rental payments or security deposits paid previously by tenant, and to landlord, and not used at the time of signing this amendment, shall be applied to the lease.

LIMITATION ON TENANTS REPAIR RESPONSIBILITIES


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Tenant will be liable only for repairs caused by tenant's action or use. Tenant is not responsible for the following: Structural defects Roof leaks Latent defects Air conditioning parts, in particular the compressor, as long as tenant has

paid the annual maintenance fee. Repairs covered by any insurance policy held by landlord Damage caused by natural disasters.

COMPLIANCE WITH LAWS Tenant is not responsible for compliance with laws or ordinances which require structural or other changes to the building or signage. The landlord shall comply with such laws or ordinances and make reasonable efforts to restore tenant to benefits from the lease.

SIGNAGEThe signage on the building is approved, and the tenant will be allowed to move the roadside sign up a space.

NON-COMPETITIONThe landlord agrees not to permit a competitive business, to lease space within the building or complex of buildings under the control of the landlord in the same neighborhood.

NOTICE OF DEFAULT Landlord may not place tenant in default for payment of rent without Landlord's first having provided tenant with written notice of the reason for default, and allowing tenant four (4) days to cure the default.

LIMITATION ON ACCELERATION Any clause in the lease which calls for acceleration of lease payments in the event of a tenant default, is limited to six months of accelerated rent, and the landlord shall not reenter for ninety (90) days following written notice to tenant.

ARBITRATIONIn the event of differences, or if any disputes, claims, breach or controversies, should arise between the landlord and tenant, upon demand for arbitration by either party, the following procedure shall be followed:

1. The landlord and the tenant shall each have three (3) days, after written demand for arbitration has been made, to designate an arbitrator.

2. Within two (2) days thereafter, the arbitrators so designated shall select another arbitrator, and these individuals shall constitute the Board of Arbitrators.

3. Within five (5) days after said arbitrators have been so selected, the Board of Arbitration shall render its decision on the matter presented to it, and such decision shall be final, binding and conclusive.


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4. Each party will pay for its own attorney and designated arbitrator, and share the expense of the third arbitrator equally.

5. Should rules be required in the hearing, the rules of the American Arbitration Association will be used.

6. Notwithstanding the foregoing, either party may refuse to arbitrate if the dispute is for a sum less than $200.00

GUARANTOR'S RIGHTS Landlord shall recognize the primary tenant, and guarantor as parties with equal rights under this lease.

OTHER PROVISIONS:

Signed this ____ day of November, 2002.

Landlord: ___________________________

Tenant: ____________________________

*********************************************************************************


79

EXHIBIT D. SAMPLE SCHEDULE OF SERVICES AND FEES

SCHEDULE OF SERVICES AND FEES

A. Receptionist/Personal Telephone Secretary will answer telephone, 9:00 a.m. to 5:00 p.m., Monday through Friday, Legal holidays are excluded. $30.00 per month **.

B. Receptionist will screen and announce all visitors.

C. Use of conference room for conference activities, available eight (8) hours per month, nontransferable. Additional time at $5.00 per hour. Uses other than conference activities must be approved by landlord and may require additional charges. Use of meeting room for seminars, lectures, meetings, etc., shall be available for one hundred ($100) dollars for an eight (8) hour day. Seating will be set up upon request. Easel or blackboard will be supplied at no charge.

D. Listing of clients' name or business in building lobby will be provided at a charge of $20.00 per strip.

E. Sorting and handling client’s incoming mail.

F. Coffee, sweeteners, cream, cups, holders, etc., is provided at a rate of $10.00 per office per month. For Tenant as well as clients on an unlimited basis.

G. Word Processing, secretarial, clerical, telex, telecopier and outgoing postal services are to be provided by approved subcontractor working in the suite.

H. Photocopying is to be provided by ___________________, subcontractor at a rate of $.15 per copy up to 300 copies, $.10/copy thereafter.

I. Overnight mail packages will be prepared by Secretary charged to a master account for Tenants convenience. A service fee of 15% will be charged for this service.

J. All other charges will be computed and billed by the first day of the following month and all charges shall be paid by Tenant by the 5th day of the month. Any fees unpaid by the following first of the month will constitute a lease default and all remedies of the Landlord pursuant to the Lease Default shall apply.


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The foregoing list of services has been reviewed by the Tenant and with his signature below, Tenant acknowledges such review and acceptance of same.

Tenant: _____________________ Date: _____________________

Charges for these services are billed in advance. Client may cancel the service with thirty (30) days written notice from the first of any month. Changes in service rates are subject to change upon thirty (30) days written notice from___________________________________, but in no event shall such price increase exceed twenty percent (20%) of the above stated amounts.


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